RAILROAD  AND  PUBLIC 
SERVICE  COMMISSIONS 


V  id  Q  i 

BY 

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SOI  IV  ' 

O  *o  jixT 

MAX  THELEN 


Attorney  for  Railroad  Commission,   State  of  California 


f  California 

Regional 

facility 


SACRAMENTO: 

f      -      -      SUPERINTENDENT  OF  STATE  PRINTING 
1012 


REPORT 


LEADING  RAILROAD  AND  PUBLIC 
SERVICE  COMMISSIONS 


MAX  THELEN 

Attorney  for  Railroad  Commission,  State  of  California 


SACRAMENTO: 

FRIEND  WM.  RICHABDSON      -      -      SUPERINTENDENT  OF  STATE  PRINTING 

1012 


SUBJECT  INDEX. 


OREGON.  PAGE 

1.  INTRODUCTION 2 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 2 

3.  PHYSICAL  VALUATION 3 

4.  PUBLIC  UTILITIES 4 

5.  RATE  MAKING 5 

6.  EXPRESS   RATES   5 

7.  LITIGATION   6 

8.  GRADE  CROSSINGS 6 

9.  COMPLAINTS  TO  INTERSTATE  COMMERCE  COMMISSION 7 

10.  CAR  FOR  TRACK  SCALE  TESTS 7 

11.  LONG  AND  SHORT  HAUL  CLAUSE . 7 

12.  CO-OPERATION   8 

WASHINGTON. 

1.  INTRODUCTION 9 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 9 

3.  PHYSICAL  VALUATION 10 

4.  ENGINEERING  DEPARTMENT 11 

5.  COURT  PROCEEDINGS 12 

6.  SERVICE  AND  FACILITIES 13 

7.  PUBLIC  UTILITIES 14 

8.  RATE  FIXING 14 

9.  RESULTS  OBTAINED  BY  THE  COMMISSION 15 

NEBRASKA. 

1.  INTRODUCTION „ 16 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 16 

3.  STOCK  AND  BOND  LAW 17 

4.  TELEPHONE  COMPANIES 18 

5.  ELECTRIC  STREET  RAILWAYS 18 

6.  RATE  LITIGATION 18 

7.  MONTHLY  REPORTS  FROM  RAILROADS 19 

8.  ANNUAL  REPORTS 20 

9.  FORM  OF  ACCOUNTS 20 

10.  PHYSICAL  VALUATION 20 

11.  ATTITUDE  TOWARD  PHYSICAL  VALUATION 22 

12.  NEW  PROCEDURE  ON  APPEAL 22 

13.  CHANGES  IN  SCHEDULES 23 

MINNESOTA. 

1.  INTRODUCTION 24 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 24 

3.  EXPRESS  INVESTIGATION 25 

4.  MINNESOTA  RATE  CASE 26 

5.  FEDERAL  COURTS 27 

6.  CHANGES  IN  RATES 28 

7.  GRADE   CROSSINGS    28 

8.  PHYSICAL  VALUATION 28 

9.  FORM  OF  ACCOUNTS 29 

10.  SERVICE  AND  FACILITIES 29 

11.  INTERSTATE  COMMERCE 30 

12.  ACCIDENT  REPORTS 30 

13.  LITIGATION    .                                                                                         30 


IV  SUBJECT   INDEX. 

WISCONSIN.  PAGE. 

1.  INTRODUCTION 31 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 31 

3.  PROCEDURE  ON  APPEAL 33 

4.  RATE  FIXING 33 

5.  STOCK  AUD  BOND  LAW 34 

6.  INDETERMINATE  PERMITS  33 

7.  USE  OF  FACILITIES  BY  OTHER  UTILITIES 36 

8.  PHYSICAL  VALUATION  36 

9.  DEPRECIATION  ACCOUNT 37 

10.  PUBLIC  CONVENIENCE  AND  NECESSITY  LAW 37 

11.  RATE  CHANGES 38 

12.  MUNICIPAL  COUNCILS 38 

13.  GAS,  ELECTRIC  AND  TELEPHONE  INSPECTION 38 

14.  RATE  DEPARTMENT 39 

15.  DEPARTMENT  OF  STATISTICS  AND  ACCOUNTS 40 

16.  EXPRESS    INVESTIGATION    41 

17.  WRITING  OF  OPINIONS 41 

18.  COST  BASIS 42 

19.  RELATION  BETWEEN  STATE  UNIVERSITY  AND  COMMISSION 42 

NEW  YORK. 

Second   District. 

1.  INTRODUCTION 43 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 43 

3.  DIVISION  OF  HEAT.  LIGHT  AND  POWER 45 

4.  DIVISION  OF  STATISTICS 46 

5.  DIVISION  OF  TARIFFS 46 

6.  DIVISION  OF  TRAFFIC 47 

7.  DIVISION  OF  ENGINEERING  AND  INSPECTION 47 

8.  DIVISION  OF  TELEGRAPHS  AND  TELEPHONES 47 

9.  STOCKS  AND  BONDS 48 

10.  CERTIFICATE  OF  PUBLIC  CONVENIENCE  AND  NECESSITY 49 

11.  PHYSICAL  VALUATION 50 

12.  RATE  FIXING 51 

13.  RELATION  WITH  NEWSPAPERS 51 

14.  RELATION  BETWEEN  COMMISSION  AND  CORPORATIONS 51 

15.  ELIMINATION  OF  GRADE  CROSSINGS 52 

16.  DISCOUNTS  AND  EXPENSES 52 

17.  AMORTIZATION  FUND 53 

MASSACHUSETTS. 
A. 

Railroad  Commission. 

1.  INTRODUCTION 54 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 54 

3.  RATE  FIXING 55 

4.  FACILITIES,  EQUIPMENT,  SAFETY  DEVICES 5(5 

5.  POWERS  OF  BOARD  AS  TO  CHARTERS,  FINANCES,  AND  CONSTRUCTION 56 

6.  GRADE  CROSSINGS 59 

7.  COURT  PROCEDURE  59 

8.  ANNUAV  REPORT .-,!• 

9.  LIBRARY) 60 

10.  INSPECTORS   66 


SUBJECT   INDEX.  V 

B. 

Gas  and   Electric  Commissioners.  PAGE. 

1.  INTBODUCTION 61 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 61 

3.  RATE  FIXING 62 

4.  STOCKS,  BONDS,  CONSOLIDATION 62 

5.  NEW  GAS  OB  ELECTRIC  PLANTS 63 

6.  ACCOUNTS    63 

7.  LITIGATION    64 

NEW    YORK. 

First   District. 

1.  INTBODUCTION 65 

2.  OBGANIZATION  AND  OFFICE  SYSTEM 65 

3.  LEGAL  DEPABTMENT 67 

4.  STOCKS  AND  BONDS 69 

5.  CERTIFICATE  OF  PUBLIC  CONVENIENCE  AND  NECESSITY 71 

6.  APPBOVAL  OF  FBANCHISES 71 

7.  FRANCHISE  BUBEAU 71 

8.  PHYSICAL  VALUATION 73 

9.  NEWSPAPERS   73 

10.  LIBBABY  73 

11.  ACCIDENTS 73 

MARYLAND. 

1.  INTBODUCTION 74 

2.  OBGANIZATION  AND  OFFICE  SYSTEM 74 

3.  STOCK  AND  BOND  ISSUES 74 

Interstate  Commerce  Commission. 

1.     NOTE 75 

GEORGIA. 

1.  INTBODUCTION 76 

2.  OBGANIZATION  AND  OFFICE  SYSTEM 76 

3.  LEGAL  DEPABTMENT 77 

4.  RATES    77 

5.  STOCK  AND  BOND  ISSUES 78 

6.  EXPBESS  BATES 78 

7.  PUBLIC  UTILITIES 79 

8.  TELEPHONE  AND  TELEGBAPH  COMPANIES 79 

9.  COUBT  BEVIEW  AND  APPEAL 79 

10.  RAILBOAD  MAPS  79 

11.  PASSENGEB  TRAIN  DELAYS 79 

12.  GENERAL  OBDERS,  BULES  AND  REGULATIONS 79 

TEXAS. 

1.  INTRODUCTION 81 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 81 

3.  RAILROAD  RATES 81 

4.  EMERGENCY  BATES 82 

5.  EXPRESS  RATES 83 

6.  DEPARTMENT  OF  STATISTICS  AND  ACCOUNTS 83 

7.  VALUATION  OF  RAILROAD  PROPERTIES 84 

8.  STOCK  AND  BOND  LAW 86 

9.  CONTROL  OVER  COBPORATIONS 86 

10.  DEPOT  COMPLAINTS  86 

11.  NEWSPAPERS   _  87 


VI  SUBJECT   INDEX. 

OKLAHOMA.  PAGE. 

1.  INTRODUCTION 88 

2.  ORGANIZATION  AND  OFFICE  SYSTEM 88 

3.  COURT  PROCEDURE 89 

4.  LITIGATION    90 

5.  COMMISSION'S  BUSINESS 93 

6.  AUDITING  DEPARTMENT 94 

7.  ENGINEERING  DEPARTMENT  95 

8.  TELEPHONE  DEPARTMENT  95 

9.  RATE  DEPARTMENT 96 

10.  CORPORATION  CLERK  DEPARTMENT 96 

11.  MUNICIPAL  UTILITIES —  96 

12.  GAS  AND  ELECTRIC  COMPANIES 96 

13.  USE  OF  INITIATIVE  BY  CORPORATIONS 96 

RECOMMENDATIONS    .                                            97 


REPORT  ON  LEADING  RAILROAD  AND  PUBLIC 
SERVICE  COMMISSIONS 

By  MAX  THELEN. 

To  the  Honorable  the  Railroad  Commission  of  the  State  of  California. 

GENTLEMEN:  On  June  26,  1911,  your  Commission  adopted  a  resolu- 
tion directing  me  to  visit  the  leading  railroad  and  public  service  com- 
missions of  the  country  and  the  Interstate  Commerce  Commission,  for 
the  purpose  of  investigating  "the  powers  and  workings  of  said  com- 
missions, the  steps  which  they  may  be  taking  to  secure  the  physical 
valuations  of  the  properties  of  the  public  utilities  over  which  they  have 
control,  and  proceedings  in  the  matter  of  establishing  express  and  other 
rates  and  office  organization,  and  the  litigation  in  which  they  may  be 
involved,  so  that  this  Commission  may  be  better  able  to  advance  and 
safeguard  its  similar  work  within  the  State  of  California,"  and  to  pre- 
sent to  your  Commission  a  report  in  writing  of  the  results  of  my  inves- 
tigation. Acting  under  these  instructions,  I  left  San  Francisco  on 
July  3,  1911,  and  visited  the  railroad  or  public  service  commissions  of 
Oregon,  Washington,  Nebraska,  Minnesota,  Wisconsin,  New  York, 
Massachusetts,  Maryland,  Georgia,  Texas  and  Oklahoma,  and  the  Inter- 
state Commerce  Commission,  returning  to  my  duties  here  on  August  22, 
1911. 

I  talked  with  nearly  all  the  commissioners  and  department  heads  for 
the  purpose  of  ascertaining  the  work  being  done  by  each  commission 
and  its  respective  departments.  I  also  bore  in  mind  the  necessity  of 
passing  a  statute  in  this  State  after  the  adoption  of  the  constitutional 
amendments  affecting  your  Commission,  and  made  inquiries"  from  all 
the  commissions  concerning  the  working  of  their  particular  statutes  and 
the  amendments,  if  any,  which  have  recently  been  adopted,  or  which  the 
respective  commissioners  might  have  to  suggest.  I  present  herewith 
my  report,  by  states,  in  the  order  in  which  I  visited  them. 


REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 


OREGON. 

i. 

INTRODUCTION. 

The  Railroad  Commission  of  Oregon  was  created  by  Act  of  Feb- 
ruary 18,  1907.  The  Commission  exercises  control  over  all  railroad, 
union  depot,  terminal,  car,  oil,  tank  line,  sleeping-car,  freight,  freight 
line  and  express  companies,  except  street  and  other  railroad  companies 
lying  entirely  within  the  limits  of  a  city.  The  act  is  modeled  largely 
on  the  "Wisconsin  statute,  and  follows  it  as  to  procedure  on  appeal 
from  the  orders  of  the  Commission  and  control  of  rates,  service,  facil- 
ities and  equipment. 

Oregon  has  no  stock  and  bond  law  and  no  public  convenience  and 
necessity  or  indeterminate  permit  law.  A  proposed  public  utilities 
law,  passed  by  the  legislature  of  1911,  and  signed  by  the  Governor, 
was  held  up  by  a  referendum  and  will  not  be  voted  upon  until  Novem- 
ber, 1912. 

II. 

ORGANIZATION  AND  OFFICE  SYSTEM. 

1.  The  Commission. 

The  commissioners  are  Clyde  B.  Aitchison,  Chairman,  a  lawyer; 
Thomas  K.  Campbell,  a  lumberman;  Senator  Frank  J.  Miller,  a 
foundryman  and  labor  leader.  The  term  of  office  is  four  years  and 
the  salary  $4,000.00  per  year.  Two  of  the  commissioners  are  elected  from 
the  two  congressional  districts  of  the  state  and  the  third  at  large.  The 
statute  provides  that  no  commissioner  shall  pursue  any  other  business 
or  vocation.  Mr.  Aitchison  tells  me  that  this  provision  is  observed. 
The  statute  also  provides  that  each  commissioner  "shall  devote  his 
entire  time  to  the  duties  of  his  office."  Oswald  West,  the  present 
Governor  of  Oregon,  made  his  record  as  a  member  of  the  Railroad  Com- 
mission and  was  elected  while  such  commissioner.  Mr.  Aitchison  was 
formerly  clerk  of  the  Tax  Commission,  then  secretary  of  the  old  Board 
of  Railroad  Commissioners,  then  appointed  by  Governor  Chamberlain 
in  1907,  and  then  elected  by  the  people,  and  has  been  chairman  of  the 
board  since  January,  1911. 

2.  Employees. 

The  Commission  employs  a  secretary  at  a  salary  of  $2,000.00  per 
year;  a  rate  expert  at  a  salary  of  $2,000.00  per  year;  an  engineer  at 
a  salary  of  $2,000.00  per  year;  an  assistant  engineer  at  a  salary  of 
$1,500.00  per  year,  and  a  stenographer  at  a  salary  of  $1,200.00  per 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  3 

year.  The  Commission  also  at  times  calls  in  a  consulting  engineer, 
particularly  for  inspection  purposes.  The  consulting  engineer  is  paid 
only  for  such  time  as  he  devotes  to  the  work.  Mr.  Aitchison  showed 
me  a  quarterly  bill  for  such  engineer  amounting  to  $170.00. 

3.     Office  System. 

The  secretary  uses  a  decimal  filing  system.  This  system  will  be 
discussed  more  in  detail  in  connection  with  the  Public  .Service  Com- 
mission of  the  Second  District  of  New  York.  Rates  in  effect  are  filed 
in  cases  with  pockets,  both  numbered.  Rates  which  have  been  super- 
seded are  pasted  into  scrapbooks  about  four  inches  thick  with  leather 
backs  and  then  stored.  Both  the  effective  and  the  superseded  rates 
are  indexed  by  a  card  system.  In  the  case  of  commodities,  this  is  a 
triple  index,  being  arranged  as  to  (1)  issuing  railroad  with  its  filing 
number,  (2)  Commission's  filing  number,  (3)  commodity. 

The  library  is  well  kept  up  and  contains  an  almost  complete  set  of 
state  railroad  commission  reports.  It  also  contains  a  large  number  of 
stockholders'  reports  of  the  different  railroad  companies.  The  Com- 
mission has  secured  practically  a  complete  set  of  these  reports,  in  so  far 

as  the  railroads  of  Oregon  are  concerned. 

•   i 

III. 

PHYSICAL  VALUATION. 

The  Commission  is  now  engaged  in  ascertaining  the  value  of  the  rail- 
road properties  within  the  State.  No  findings  have  been  made  as  to 
any  particular  railroad,  but  the  work  is  being  carried  on  as  to  all  of 
them.  A  formal  notice  was  prepared  and  addressed  to  each  railroad, 
reciting  that  pursuant  to  the  provisions  of  the  statute,  the  Commission 
would,  on  a  day  certain,  proceed  to  investigate  to  ascertain  the  matters 
specified  in  the  statute ;  that  the  investigation  would  be  continued  from 
time  to  time  and  from  place  to  place  as  might  be  found  desirable ;  and 
that  the  railroads  would  be  entitled  to  appear  and  be  heard  and  to 
have  process  to  compel  the  attendance  of  witnesses.  The  railroads 
thereupon  appeared  and  all  of  them,  with  the  exception  of  the  Southern 
Pacific  Company,  have  furnished  data  concerning  both  the  original 
cost  of  construction  and  the  present  cost  of  reproduction.  A  form  of 
return,  practically  identical  with  that  prescribed  by  the  Interstate 
Commerce  Commission  in  its  classification  of  expenditures  for  road  and 
equipment,  was  prepared  by  the  Commission  and  sent  to  each  of  the 
railroads.  The  information  requested  has  been  furnished  on  these 
forms  by  all  of  the  railroads,  except  the  Harriman  lines,  which  used 
slightly  different  forms.  Upon  receipt  of  the  information  required,  a 
hearing  is  had.  A  large  portion  of  the  testimony  is  generally  devoted 
to  the  question  as  to  the  relative  sum  necessary  to  be  paid  by  the  rail- 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

road  companies  for  right  of  way  in  excess  of  its  real  value.  The  Oregon 
Commission  seems  to  follow  in  this  respect  the  Minnesota  Commission, 
which  established  a  multiple  of  three  as  to  country  land,  and  about  one 
and  twenty-five  hundredths  as  to  city  terminal  property.  The  results 
of  these  investigations  will  be  published  in  the  annual  report,  but  not 
in  as  much  detail  as  the  Washington  findings,  and  will  be  used,  but 
only  in  conjunction  with  other  elements,  in  fixing  rates. 

I  examined  in  detail  the  work  now  being  done  by  Engineer  W.  H. 
Earl  of  the  Commission  along  these  lines.  Mr.  Earl  has  examined  the 
original  records,  such  as  profiles,  vouchers,  and  contracts  to  be  found 
in  the  railroad  offices,  and  in  this  way  has  secured  complete  data  con- 
cerning the  original  cost  of  construction  of  most  of  these  lines.  For 
some  of  the  lines,  he  has  worked  out  in  detail  the  cost  of  reproduction, 
according  to  unit  prices.  He  has  worked  out  carefully  a  series  of  unit 
prices  for  the  different  kinds  of  material  used  in  railroad  construction. 
His  results  were  secured  by  ascertaining  the  price  actually  paid  in  a 
large  number  of  cases,  and  striking  an  average.  Chairman  Aitchison 
of  the  Commission  considers  the  work  which  the  Commission  has  done 
in  this  matter  to  be  of  very  considerable  merit.  Mr.  Earl  has  found 
the  quantities  as  submitted  by  Mr.  Pope  of  the  Harriman  lines  to  be 
generally  about  correct,  but  points  out  the  necessity  of  scrutinizing 
with  the  greatest  of  care  the  last  items  on  the  list  of  expenditures,  such 
as  freight  for  men  and  materials,  legal  expenses,  equipment,  interest 
and  commissions.  These  last  items  alone  raised  the  valuation  sub- 
mitted for  one  of  the  Harriman  lines  from  about  $29,000,000  to  about 
$40,000,000. 

IV. 

PUBLIC  UTILITIES. 

As  already  stated,  the  act  of  the  legislature  of  1911,  making  the 
Railroad  Commission  the  Public  Utilities  Commission  of  Oregon  and 
raising  the  salaries  of  the  commissioners  from  $4,000.00  to  $5,000.00  a 
year,  has  been  held  up  by  a  referendum.  The  opposition  came  from 
citizens  of  Portland  who  had  prepared  an  amendment  to  their  city 
charter  providing  for  a  City  Public  Service  Commission.  After  the 
referendum  had  been  invoked,  the  Portland  measure  was  defeated  at 
a  city  election.  The  result  is  that  one  measure  for  control  has  been 
defeated  and  the  other  is  held  up. 

Chairman  Aitchison  condemns  strongly  the  provisions  of  Senate 
Constitutional  Amendment  No.  47  to  be  voted  on  in  this  state  on 
October  10,  1911,  providing  that  incorporated  cities  and  towns  may 
retain  the  powers  which  they  now  have  with  respect  to  public  utilities. 
He  is  strongly  of  the  opinion  that  all  the  powers  with  reference  to 
public  utilities  ought  to  rest  in  the  state  board. 


REPORT   ON  RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS.  5 

V. 

RATE  MAKING. 

Chairman  Aitchison  is  of  the  opinion  that  the  cost  of  reproduction 
basis  for  rate  fixing  purposes  is  fraught  with  very  serious  dangers. 
He  feels  that  rates  fixed  on  that  basis  are  likely  to  become  inordinately 
high,  particularly  if  in  ascertaining  the  cost  of  reproduction,  the  right 
of  way  and  terminal  grounds  of  the  railway  companies  are  valued  as 
of  the  present  time.  He  thinks  that  it  is  not  fair  to  the  public  to  estab- 
lish a  rate  on  the  value  of  real  property  immensely  enhanced  by  the 
growth  of  population  of  adjacent  territory.  He  states  that  rates  based 
on  7  per  cent  of  the  cost  of  reproducing  the  Pennsylvania  railroad 
system  to-day  would  be  absolutely  prohibitive.  He  is  of  the  opinion 
that  a  state  commission,  in  fixing  rates,  must  consider  all  the  other 
matters  suggested  in  the  case  of  Symtli  vs.  Ames,  169  U.  S.  464,  such 
as  the  original  cost,  market  value  of  stocks  and  bonds,  density  of  traffic, 
density  of  population,  etc.  I  find  that  all  the  western  commissions 
are  very  much  exercised  over  the  cost  of  reproduction  as  the  basis  for 
fixing  rates,  particularly  when  the  cost  of  reproduction  includes  the 
unearned  increment.  This  fear  has  been  very  much  accentuated  by  the 
decision  of  Judge  Sanborn  in  the  Minnesota  rate  case,  in  which  case  the 
value  of  the  railroads  as  found  by  the  Master  was,  according  to  one  of 
the  Wisconsin  commissioners,  at  least  50  per  cent  in  excess  of  the  value 
as  shown  by  the  evidence. 

VI. 

EXPRESS   RATES. 

I  went  through  the  Commission's  file  in  case  number  121,  being  an 
investigation  instituted  February  15,  1910,  into  the  rates  of  Wells- 
Fargo  &  Company  on  property  taking  merchandise  and  general  special 
rates  or  multiples  thereof.  The  Commission  made  its  order  July  12, 
1910,  reducing  somewhat  the  rates  in  effect.  On  rehearing,  the  Com- 
mission modified  its  final  order  by  reducing  somewhat  the  reductions 
contemplated.  The  express  company  thereupon  complied  with  the 
order.  I  find  that  Oregon  and  Montana  are  probably  the  only  states  in 
which  Wells-Fargo  &  Company  has  complied  with  orders  of  state  com- 
missions reducing  express  rates.  In  Iowa,  Illinois,  Indiana,  Missouri 
and  Oklahoma,  the  express  companies  have  secured  injunctions  against 
the  respective  commissions.  In  the  last  two  states,  the  Commissions 
have  been  tied  up  in  this  way  for  over  two  years. 

I  read  the  transcript  of  the  testimony  in  the  Oregon  case  and  looked 
through  the  exhibits,  and  have  made  notes  thereon. 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

VII. 

LITIGATION. 

On  July  3,  1911,  the  day  before  I  reached  Portland,  Judge  Bean, 
sitting  in  the  Federal  Circuit  Court,  sustained  the  demurrer  of  the 
defendant  railway  commissioners  in  the  case  of  Southern  Pacific  Com- 
pany vs.  Campbell,  in  which  case  the  complainant  had  secured  an  injunc- 
tion, restraining  the  enforcement  of  an  order  of  the  Commission  reducing 
class  rates  in  the  Willamette  Valley.  Judge  Bean  in  his  opinion  points 
out  the  necessity  of  showing  the  specific  facts  which  are  relied  upon 
to  make  out  a  case  of  confiscation  of  property.  On  the  question  of 
interference  with  interstate  commerce,  he  reaffirms  the  decision  in  the 
case  of  Oregon  Railway  and  Navigation  Company  vs.  Campbell,  173 
Fed.  957;  177  Fed.  318;  180  Fed.  253.  In  this  latter  case,  Judge 
Wolverton  reached  a  decision  on  the  question  of  interference  with 
interstate  commerce  directly  at  variance  with  the  decision  of  Judge 
Sanborn  in  the  Minnesota  Rate  Case.  The  Oregon  case  and  the  Min- 
nesota case  together  with  the  Arkansas  case  will  be  heard  before  the 
Supreme  Court  of  the  United  States  at  the  October  term. 

In  the  Portland  Railway,  Light  and  Power  Company  case  an  appeal 
has  been  taken  to  the  United  States  Supreme  Court  from  an  order  of  the 
Commission  reducing  suburban  fares  out  of  Portland.  In  this  • 
a  state  judge  granted  an  injunction  which  is  still  in  effect.  The  rail- 
way company  is  supposed  to  issue  to  each  passenger  a  receipt  for  excess 
fare  paid,  the  receipt  to  entitle  the  holder  to  a  refund  in  case  the  order 
of  the  commission  is  ultimately  sustained.  Mr.  Aitchison  is  of  the 
opinion  that  in  cases  in  which  the  Commission's  order  as  to  rates  is 
enjoined  by  the  corporations,  the  mere  giving  of  a  bond  furnishes  but 
little  relief. 

VIII. 

GRADE   CROSSINGS. 

The  Oregon  Commission  has  power  under  section  28  of  the  statute 
to  compel  the  installation  of  safety  devices  at  crossings  of  railroad  and 
highways  but  no  power  to  compel  a  separation  of  grades.  The  commis- 
sion in  its  report  for  1910  points  to  the  great  expense  which  is  being 
incurred  by  most  of  the  eastern  states  in  order  to  abolish  grade  cross- 
ings and  recommends  a  statute  like  that  of  Washington  prohibiting 
the  future  construction  of  grade  crossings  except  in  cases  where  upon 
investigation  by  the  railroad  commission  it  has  been  found  practicable 
to  establish  such  a  grade  crossing.  The  legislature  of  1911  failed  to 
pass  such  a  law  for  the  reason  that  the  people  of  the  West  do  not  seem 
as  yet  to  realize  the  very  great  importance  of  the  question  of  the  aboli- 
tion of  grading  crossings.  Mr.  Aitchison.  however,  is  of  the  opinion  that 
the  next  legislature  wrill  pass  the  desired  statute. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  7 

IX. 

COMPLAINTS   TO    INTERSTATE   COMMERCE   COMMISSION. 

Section  47  of  the  Railroad  Commission  Act  makes  it  the  duty  of  the 
Commission  to  investigate  interstate  freight  rates  affecting  Oregon  and 
to  request  of  the  railroads  such  changes  as  the  Commission  may  con- 
sider necessary  and  thereafter,  if  the  changes  are  not  made,  to  apply 
by  petition  to  the  Interstate  Commerce  Commission  for  relief.  The 
statute  also  provides  that  the  railroads  must  file  with  the  Commission 
all  freight  tariffs  relating  to  interstate  traffic.  Mr.  Aitchison  con- 
siders this  matter  of  complaint  before  the  Interstate  Commerce  Com- 
mission on  the  part  of  the  state  commission  to  be  of  considerable 
importance.  His  Commission  is  now  taking  up  with  the  Interstate  Com- 
merce Commission  the  matter  of  Interstate  wool  rates,  affecting  ship- 
ments from  eastern  Oregon.  The  Commission  does  not  take  up  with 
the  Interstate  Commerce  Commission  matters  of  a  merely  individual 
or  local  interest,  as  is  done  by  the  Oklahoma  Commission,  but  confines 
its  work  along  these  lines  to  rates  affecting  a  considerable  traffic  within 
the  state. 

X. 
CAR  FOR  TRACK  SCALE  TESTS. 

The  matter  of  the  correctness  of  track  scales  seems  to  be  of  consider- 
able importance  in  both  Oregon  and  Washington.  The  legislatures  of 
both  states  in  1911  provided  for  the  joint  purchase  by  the  two  railway 
commissions  of  a  car  for  the  purpose  of  testing  track  scales,  and  for 
the  transportation  of  such  car  free  by  the  railroads. 

XI. 

LONG  AND  SHORT  HAUL  CLAUSE. 

While  there  is  no  long  and  short  haul  clause  in  the  Constitution  of 
Oregon  or  in  the  Railroad  Commission  Act,  the  Supreme  Court  of 
Oregon  has  held  that  the  provisions  of  the  statute  against  undue  dis- 
crimination are  equivalent  to  such  a  clause.  The  legislature  of  1911 
accordingly  granted  the  Commission  power  to  authorize  departures 
from  this  prohibition. 

When  application  is  made  for  permission  to  deviate  from  the  long 
and  short  haul  clause,  the  Commission  notifies  the  municipalities  and 
commercial  bodies  along  the  line  of  the  railroad  in  the  territory  affected. 
In  only  one  case  has  the  Commission  granted  the  desired  permission. 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

XII. 
CO-OPERATION. 

Chairman  Aitchison  suggests  that  it  would  be  well  to  form  a  Pacific 
Coast  Railway  Commissioners'  Association,  to  consist  of  the  commis- 
sioners of  Oregon,  Washington,  California,  and  Nevada,  and  to  hold 
frequent  conferences  concerning  matters  which  are  of  interest  to  all 
the  Commissions.  This  suggestion  is  particularly  valuable,  in  view 
of  the  fact  that  in  "Washington  and  Nevada  the  legislatures  of  1911 
conferred  upon  the  state  railroad  commissions  the  power  to  regulate 
public  utilities,  while  in  Oregon  such  statute  has  been  passed  and  will 
go  into  effect  at  least  by  November  of  next  year.  California,  in  enter- 
ing upon  her  problem  of  regulating  public  utilities,  can  doubtlessly 
secure  very  material  assistance  from  these  other  states.  All  these  four 
states  are  likewise  interested  in  the  valuation  of  the  Harriman  lines, 
and  should,  if  possible,  take  concerted  action  in  this  matter. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS. 


WASHINGTON. 

I. 
INTRODUCTION. 

The  Public  Service  Commission  of  Washington  was  created  by  statute 
of  1911  to  take  the  place  of  the  former  railroad  commission,  which  was 
established  in  1905.  The  Railroad  Commission's  powers  were  enlarged 
so  that  the  present  Public  Service  Commission  has  jurisdiction  over 
railroad,  street  railroad,  steamboat,  express,  car,  sleeping  car,  freight, 
freight  line,  gas,  electric,  telephone,  telegraph,  water,  wharfinger,  and 
warehouse  companies,  except  municipally  owned  plants.  The  statute  is 
carefully  worked  out,  containing  first  a  general  introduction,  then  pro- 
visions concerning  the  duties  of  each  separate  class  of  utility  subject  to 
the  control  of  the  Commission,  then  provisions  prescribing  the  powers 
of  the  Public  Service  Commission  as  to  all  these  companies,  then  provi- 
sions concerning  procedure  before  the  Commission  and  the  courts,  and 
finally  provisions  concerning  construction  and  repeal  and  a  saving 
clause. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.  The  Commission.     • 

The  commissioners  are  H.  A.  Fairchild,  chairman,  a  lawyer  of  un- 
usual ability;  J.  C.  Lawrence;  and  Jesse  Jones,  a  labor  leader.  The 
term  of  office  is  six  years,  with  intervals  of  two  years  between  expira- 
tions, and  the  salary  of  the  commissioners  is  $5,000.00  per  year.  The 
commissioners  are  appointed  by  the  governor.  The  statute  contains 
a  provision  to  the  effect  that  no  commissioner  shall  engage  in  any 
occupation  or  business  inconsistent  with  his  duties  as  commissioner. 
The  commissioners  all  reside  in  Olympia,  the  state  capital,  and  the 
Commission  is  in  session  practically  all  the  time.  To  my  mind,  one  of 
the  principal  reasons  for  the  undoubted  efficiency  of  this  Commission 
is  the  fact  that  the  members,  in  addition  to  being  well  qualified,  are 
on  the  job  all  the  time.  The  business  of  the  Commission  is  conducted 
promptly  and  efficiently.  While  I  was  in  Olympia,  several  matters 
came  up  concerning  new  rates  which  the  railroads  desired  to  put  into 
effect.  The  chairman  of  the  Commission  promptly  telephoned  to  the 
railroad  authorities  in  Seattle,  found  out  exactly  what  was  wanted,  and 
settled  the  matter  then  and  there. 

2.  Employees. 

The  employees  of  the  Commission  are  F.  M.  Larned,  secretary,  at  a 
salary  of  $3,000.00  per  year ;  0.  0.  Calderhead,  rate  expert,  at  a  salary 


10  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

of  $3,000.00;  Harry  L.  Gray,  engineer,  at  a  salary  of  $3,000.00;  an 
inspector  of  safety  appliances,  at  a  salary  of  $3,000.00;  a  telephone 
expert,  at  a  salary  of  $3,000.00;  an  accountant,  at  a  salary  of  $1,800.00; 
and  about  sixteen  other  employees,  of  whom  about  six  are  stenographers 
and  ten  employees  of  the  engineer. 

3.     Office  System. 

The  office  is  divided  into  different  departments,  the  secretary  being 
at  the  head  of  the  administrative  department,  the  engineer  at  the  hc.nl 
of  the  engineering  department,  and  the  rate  expert  at  the  head  of  the 
rate  department. 

III. 

PHYSICAL  VALUATION. 

By  far  the  most  important  work  which  has  been  performed  by  the 
Washington  Commission  has  been  the  valuation  of  the  railroads  of  the 
state.  Section  92  of  the  Act  of  1911,  being  an  amendment  of  a  similar 
provision  in  the  earlier  statute,  provides  that  it  shall  be  the  duty  of  the 
Commission  to  ascertain  the  numerous  items  specified  in  the  statute 
relating  to  the  value  of  the  railroads  of  the  state  and  to  hold  a  hearing 
thereafter  to  ascertain  these  matters,  upon  notice  to  the  company,  and 
then  to  make  its  findings,  with  the  right  of  review  on  the  part  of  the 
corporations.  I  read  the  entire  first  volume  of  the  transcript  of  the 
testimony  on  the  investigation  into  the  value  of  the  Great  Northern  and 
other  railroads.  The  proceedings  were  conducted  like  court  proceed- 
ings. Chairman  Fairchild  presided  and  ruled  on  the  admissibility  of 
evidence.  The  Commission,  through  the  Assistant  Attorney  General, 
put  Engineer  Gillett  and  the  other  employees  of  the  engineering  depart- 
ment on  the  stand  and  through  them  introduced  their  tabulations  con- 
cerning the  cost  of  construction  of  the  railroads,  land  values,  and  so  on. 
Rate  Expert  Calderhead  was  then  put  on  to  testify  as  to  rates,  move- 
ment of  traffic,  cost  of  operation  and  similar  matters.  After  the  rail- 
roads had  presented  their  case,  the  findings  were  prepared.  As  these 
findings  are  by  far  the  most  complete  of  their  kind  in  the  country,  I 
wish  to  refer  here  to  the  nature  of  the  findings  in  the  Northern  Pacific 
case.  The  Commission  there  made  findings  on  the  following  facts: 

1.  Financial  history  of  the  railroad  in  Washington,  with  dates  of 
construction  of  the  main  and  all  branch  lines,  and  the  financial  history 
of  the  subsidiary  corporations. 

2.  Original  cost  of  main  and  all  branch  lines. 

3.  Cost  of  improvements  and  betterments. 

4.  Amount   allowable   for  discount,   general  expenses  and   interest 
during  construction. 

5.  Amount  of  depreciation  of  the  various  structures  (Gillett 's  tables) . 

6.  Original  cost  and  cost  of  reproduction  of  all  equipment. 


KEPORT   ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  11 

7.  Cost  of  reproduction  of  all  rights  of  way  and  terminal  grounds. 

8.  Property  owned  by  railroad,  but  not  used  for  operation. 

9.  Character  of  country  traversed. 

10.  Density  of  population  and  traffic. 

11.  Sources  from  which  capital  was  derived;  total  bonded  indebted- 
ness; market  value  of  stock  and  bonds  over  a  period  of  several  years. 

12.  Total  tonnage  of  freight  carried  in  Washington  for  three  years, 
with  percentage  of  each  commodity,  divided  as  to  state  and  interstate, 
with  the  average  haul  of  each  and  the  average  haul  within  the  state  of 
the  interstate  haul. 

13.  Total  number  of  passengers  carried  in  Washington  for  three 
years,  with  passenger  miles ;  average  distance,  state  and  interstate ;  and 
revenue. 

14.  Express,  mail,  and  other  transportation  revenues. 

15.  Operating  divisions. 

16.  Number  of  employees  and  their  wages. 

17.  Total  present  cash  market  value  ($110,208,450). 

18.  Cost  of  operation,  divided  into  freight  and  passenger. 

19.  Average  cost  per  ton  for  moving  freight ;  cost  per  ton  for  moving 
each  of  the  more  important  commodities. 

20.  Freight  operating  expenses,  divided  into  state  and  interstate. 

21.  Passenger  operating  expenses,  divided  into  state  and  interstate. 

22.  Method  of  apportioning  revenues;  total  for  state  and  interstate 
for  three  years. 

23.  Taxes  for  three  years. 

24.  Gross  earnings  and  expenses  (probable)  for  year  ending  June  30, 
1909. 

25.  Rates  on  most  important  state  commodities. 

26.  Total  value  of  property  devoted  to  state  business  ($45,226,464.50). 
These  findings  show  the  most  thorough  and  painstaking  work  on  the 

part  both  of  the  engineering  and  rate  departments  of  the  commission. 
Mr.  Calderhead,  the  rate  expert,  is  not  merely  thoroughly  acquainted 
with  rate  matters,  but  seems  also  to  be  an  able  statistician  and  account- 
ant. Most  state  commissions  of  the  first  rank  have  separate  rate  and 
statistical  departments. 

IV. 

ENGINEERING  DEPARTMENT. 

I  spent  several  hours  in  consultation  with  Engineer  Henry  L.  Gray, 
investigating  the  manner  in  which  the  work  of  his  department  is  con- 
ducted. In  order  to  ascertain  the  original  cost  of  construction  of  the 
railroad  properties  in  the  state  of  Washington,  the  employees  of  the 
Commission  went  to  the  original  records  of  the  railway  companies  and 

2— RC 


12  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

took  off  from  them  the  quantities  and  prices.  The  engineering  depart- 
ment never  takes  the  railroads'  figures.  The  department  checks  over 
the  data  furnished  by  the  railway  companies  by  going  to  the  final 
estimates  and  other  data,  both  in  the  office  of  the  chief  engineer  and  of 
the  auditor.  Men  are  also  sent  out  into  the  field,  in  order  to  check  up 
quantities  and  amounts.  The  estimates  furnished  by  the  railway  com- 
panies are  generally  fairly  correct  as  to  quantities;  but  Mr.  Gray  has 
found  it  very  necessary  to  scrutinize  such  items  as  can  not  be  checked 
over  from  the  books  of  the  company,  such  as  engineering  expenses,  legal 
expenses,  discount,  interest  and  freight.  Mr.  Gray  prepares  his  reports 
concerning  the  different  companies  in  very  readable  and  attractive 
form.  These  reports  generally  contain  information  concerning  the 
organization  and  financial  history  of  the  railroad,  its  physical  features, 
its  general  balance  sheet,  original  cost  of  construction  with  all  details, 
the  cost  of  reproduction  with  all  details,  and  the  amount  of  deprecia- 
tion. The  work  is  done  in  a  scholarly  and  thorough  manner,  with  con- 
siderable attention  to  special  features  of  the  various  companies. 

Mr.  Gray  has  prepared  complete  reports  as  to  the  physical  valuation 
and  other  data  of  the  telephone  companies  of  Spokane  and  Seattle. 
The  Commission  will  soon  issue  orders  in  the  matter  of  telephone  rates. 

As  already  stated,  the  work  of  valuing  the  railroad  properties  has 
been  completed.  The  engineering  department  goes  to  the  records  of 
the  railroad  companies  from  time  to  time  in  order  to  keep  this  valua- 
tion up  to  date.  Within  a  few  years  a  new  estimate  as  to  the  cost  of 
reproduction  will  have  to  be  made,  for  the  reason  that  the  price  of  labor 
and  materials  is  constantly  increasing. 

Mr.  Gray  employs  some  eight  to  ten  men,  who  are  at  present  largely 
engaged  in  ascertaining  the  value  of  some  of  the  utilities,  particularly 
telephone  and  electric  light  companies. 

V. 

COURT  PROCEDURE. 

Chairman  Fairchild  tells  me  that  in  his  judgment  the  two  most  im- 
portant provisions  of  the  Washington  statute  are  those  dealing  with 
review  of  the  commission's  orders  and  review  of  their  findings  as  to 
valuations.  Section  86  of  the  statute  provides  for  a  review  of  the 
orders  and  the  findings  of  the  commission,  the  application  to  be  made 
to  the  superior  court  of  the  county  in  which  the  proceeding  was  ini- 
tiated. The  pendency  of  any  review  shall  not  of  itself  stay  or  suspend 
the  operation  of  the  order  of  the  Commission,  but  the  Superior  Court 
may,  in  its  discretion,  restrain  or  suspend  the  operation  of  the  ord-T. 
No  order  restraining  or  suspending  an  order  of  the  commission  shall 
be  made  except  upon  notice  to  the  commission  and  after  hearing, 
and  if  a  supersedeas  is  granted,  the  order  granting  the  same  must  con- 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS.  13 

tain  a  specific  finding  based  upon  evidence  submitted  to  the  court 
making  the  order  and  identified  by  reference  thereto,  to  the  effect  that 
great  or  irreparable  damage  would  otherwise  result  to  the  petitioner 
and  specifying  the  nature  of  the  damage.  In  case  the  order  of  the 
Commission  is  suspended,  the  company  must  give  a  bond  for  the  pay- 
ment of  such  sums  as  may  ultimately  be  found  to  have  been  paid  by  the 
public  in  excess  of  the  rates  specified  in  the  order  of  the  Commission. 
An  appeal  thereafter  lies  to  the  Supreme  Court.  The  Washington 
statute  does  not  contain  the  provisions  to  be  found  in  the  Oklahoma 
Constitution,  to  the  effect  that  the  appealing  company  must  keep  books 
showing  the  name  of  every  person  who  pays  a  rate  in  excess  of  that 
specified  in  the  commission's  order,  his  address,  and  the  amount  of  the 
excess. 

Chairman  Fairchild  considers  the  Washington  plan  superior  to  that 
of  Wisconsin,  where  the  procedure  is  one  to  set  aside  the  order  of  the 
Commission.  If  new  evidence  is  introduced  in  court  in  Wisconsin, 
it  is  certified  by  the  court  to  the  Commission,  and  the  Commission  must 
then  pass  again  on  the  whole  matter  before  the  court  renders  its  final 
decision. 

Chairman  Fairchild  was  particularly  enthusiastic  over  the  provisions 
of  section  92  of  the  statute,  providing  for  a  court  review  of  the  findings 
of  the  commission  as  to  physical  valuation,  with  a  provision  that  the 
findings  of  the  Commission  as  filed  or  corrected  by  the  courts  shall  be 
conclusive  evidence  in  any  other  proceedings  of  the  facts  stated  in  the 
findings  as  of  the  date  therein  specified.  In  the  grain  case,  in  which 
the  Washington  Commission  made  a  cut  of  $750,000.00  annually  in 
grain  rates,  the  Commission  introduced  a  certified  copy  of  its  prior 
findings  as  to  the  valuation  of  the  railroads  affected,  and  thus  covered 
that  part  of  its  case  in  a  minute  or  two.  The  evidence  being  conclu- 
sive on  that  point,  the  railroad  companies  could  not  make  out  a  case 
of  confiscation  of  property,  and  consequently  did  not  appeal  from  the 
decision  of  the  commission.  Mr.  Fairchild  points  out  that  the  Minne- 
sota Commission  expended  over  $50,000.00  in  securing  the  valuation 
of  its  railroad  properties  (about  the  same  amount  as  Washington),  and 
that  when  its  rate  orders  were  attacked,  the  Commission  had  to  go  into 
the  entire  matter  again  before  the  Master,  with  the  result  that  the  rail- 
ways were  enabled  to  introduce  a  mass  of  additional  evidence  which 
swamped  the  Master  and  resulted  in  an  excessively  high  valuation, 
besides  necessitating  a  very  large  amount  of  time  in  its  presentation. 

VI. 

SERVICE  AND   FACILITIES. 

The  Washington  statute  gives  to  the  Commission  adequate  powers 
over  matters  such  as  service,  equipment  and  facilities  over  which  the 


14  REPORT   ON    RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

California  Commission  does  not  at  present  have  jurisdiction.  The 
Washington  Commission  has  inspected  each  of  the  two  hundred  rail- 
way stations  in  the  state  and  has  made  a  large  number  of  orders  requir- 
ing additions  or  betterments  in  station  buildings  and  improvements  in 
facilities.  Appeals  were  taken  in  some  twenty-five  of  these  cases.  The 
Supreme  Court  of  Washington  has  generally  sustained  the  Commis- 
sion's orders.  The  Commission  employs  an  inspector  of  safety  appli- 
ances and  also  an  inspector  of  scales  for  weighing  hay  and  grain. 
Mr.  Gray,  the  engineer  in  charge  of  physical  valuation,  is  also  doing 
considerable  work  in  the  matter  of  inspecting  facilities  and  equipment. 

VII. 

PUBLIC    UTILITIES. 

When  I  visited  the  Commission  in  July  of  this  year,  the  Commission 
was  just  entering  upon  its  duties  with  regard  to  the  regulation  and 
control  of  public  utilities.  The  statute  conferring  these  powers  upon 
the  Commission  was  approved  in  March  of  this  year.  The  Commission 
had  not  at  that  time  marked  out  its  work  in  this  connection,  but  was 
beginning  to  receive  complaints  concerning  telephone  rates  and  water 
rates.  The  Commission  was  also,  having  some  little  difficulty  with 
reference  to  steamship  companies,  particularly  as  to  whether  or  not  it 
would  be  necessary  for  them  to  file  tariffs  with  the  Commission. 

VIII. 

RATE  FIXING. 

The  Washington  Commission,  although  it  has  done  preeminently  able 
work  in  the  matter  of  ascertaining  the  physical  valuation  of  railroad 
properties,  has,  nevertheless,  been  careful,  in  fixing  rates,  to  consider  all 
the  elements  specified  in  the  case  of  Symth  vs.  Ames,  including  original 
cost,  present  cost  of  reproduction,  density  of  traffic,  density  of  popula- 
tion, and  the  market  value  of  stocks  and  bonds.  Chairman  Fairchild 
points  out  that  neither  the  original  cost  of  construction  nor  the  present 
cost  of  reproduction  are  necessarily  the  proper  basis  for  rate  fixing  pur- 
poses. He  referred  to  two  railroads,  one  of  them  in  a  densely  populated 
valley  and  the  other  in  a  sparsely  settled  timber  country.  It  might  well 
be  that  the  original  cost  of  construction,  and  even  the  present  cost  of 
reproduction,  are  the  same,  or  nearly  the  same,  in  these  two  ca 
nevertheless,  it  would  be  absurd  to  say  that  these  two  railroad  prop- 
erties have  the  same  value,  either  for  rate  fixing  or  for  any  other  pur- 
pose. Chairman  Fairchild  considers  the  Puget  Sound  Electric  Railway 
case  to  represent  the  most  advanced  work  of  the  Commission.  It  is  the 
first  case  in  which  the  Commission  shows  in  its  findings  percentage  depre- 
ciation and  the  cost  of  reproduction  less  depreciation  so  as  to  ascertain 
present  value.  The  Commission  in  this  case  followed  Engineer  Gillett's 


REPORT   ON   RAILROAD  AND   PUBLIC   SERVICE   COMMISSIONS.  15 

method  of  ascertaining  average  life  of  different  kinds  of  equipment, 
salvage  value,  and  percentage  depreciation  to  be  charged  off  each  year. 
The  order  of  the  Commission  in  this  case  was  sustained  by  the  Superior 
Court  on  November  14,  1910,  but  th'e  case  has  been  appealed  to  the  State 
Supreme  Court. 

IX. 
RESULTS   ATTAINED    BY    THE    COMMISSION. 

In  addition  to  the  Commission's  work  in  connection  with  the  valua- 
tion of  its  railroads,  it  has,  among  other  things,  accomplished  the  follow- 
ing work: 

1.  It  has  established  joint  rates  on  commodities  from  eastern  Oregon 
to  Portland,  lower  than  the  sum  of  the  locals,  thus  effecting  a  reduction 
in  rates  amounting  to  about  $100,000  annually. 

2.  It  has  reduced  express  rates  on  fruit  and  vegetables  about  20  per 
cent,  but  has  made  no  general  investigation  into  express  rates.     Com- 
missioner Jones  told  me  that  the  Commission  felt  that  it  would  be  very 
necessary  to  make  such  investigation  shortly. 

3.  It  has  prescribed  a  general  distance  tariff,  thereby  making  a  reduc- 
tion of  about  $75,000.00  in  rates  annually. 

4.  It  has  established  a  joint  rate  on  wheat  from  Oregon  Railway  and 
Navigation  Company  points  in  eastern  Oregon  to  Puget  Sound  points, 
but  the  Commission's  order  in  this  case  has  been  enjoined  in  the  federal 
courts. 

5.  It  has  ordered  the  installation  of  connecting  tracks  wherever  one 
railroad  intersects  or  terminates  at  or  near  another.     The  railway  com- 
panies have  appealed  this  case  from  the  State  Supreme  Court  to  the 
United  States  Supreme  Court. 

6.  It  has  inspected  every  railroad  station  in  the  state,  as  already 
pointed  out,  and  has  made  some  200  orders  requiring  additional  station 
facilities. 

7.  It  has  made  a  reduction  of  12  per  cent  on  grain  rates  of  the  North- 
ern Pacific,  thereby  effecting  a  reduction  in  rates  of  $750,000  annually. 

8.  It  has  reduced  passenger  rates  on  the  Puget  Sound  Electric  Rail- 
way.   This  case  has  been  appealed. 

9.  It  has  denied  the  right  to  install  grade  crossings  in  some  100  cases. 

10.  It  has  requested  that  the  legislature  give  to  it  the  power  to 
abolish  existing  grade  crossings. 

11.  It  has  engaged  a  telephone  expert  and  has  made  a  careful  inves- 
tigation into  the  value  of  the  telephone  properties  within  the  state,  and 
is  now  seeking  to  ascertain  whether  it  can  order  in  a  measured  rate  as 
against  the  present  flat  rate. 


16  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 


NEBRASKA. 

I. 

INTRODUCTION. 

The  State  Kailway  Commission  of  Nebraska  was  created  by  amend- 
ment to  the  Constitution  adopted  on  November  6,  1906.  The  legislature 
of  1907  thereafter  adopted  a  comprehensive  railway  commission  act. 
The  Commission  succeeded  a  board  of  transportation  which  did  little  or 
nothing.  The  statute  of  1907  was  amended  in  1911  with  reference  to 
the  method  of  review  of  the  decision  of  the  commission.  Appeals  must 
now  be  taken  directly  to  the  state  supreme  court  and  the  evidence  pre- 
sented before  the  Commission  can  alone  be  considered. 

The  Nebraska  Commission  has  power  to  fix  the  rates  and  to  regulate 
the  service  of  railroads,  express,  car,  sleeping  car,  freight,  freight  line, 
telephone  and  telegraph  companies.  The  Commission  has  jurisdiction 
over  all  railways,  including  steam,  interurban,  and  street.  The  legis- 
lature of  1911  placed  irrigation  companies  under  the  control  of  the 
Commission. 

The  matter  of  bringing  all  public  utilities,  such  as  gas,  light,  heat, 
power  and  water  companies,  under  the  control  of  the  Commission  has 
been  discussed  during  the  last  two  sessions  of  the  legislature  but  no 
action  has  been  taken.  Under  the  stock  and  bond  law,  however,  the 
Commission  regulates  the  issues  of  stocks  and  bonds  of  all  public  service 
corporations,  including  gas,  light,  heat,  power,  and  water  companies. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.  The  Commission. 

The  commissioners  are  Dr.  H.  J.  Winnett,  a  retired  physician,  chair- 
man ;  Henry  T.  Clarke,  Jr.,  an  attorney ;  and  W.  J.  Furse,  also  an  attor- 
ney. The  commissioners  are  selected  for  six  year  terms  with  intervals 
of  two  years.  They  receive  a  salary  of  $3,000.00  per  annum  and  devote 
their  entire  time  to  the  duties  of  their  office. 

A  regular  meeting  is  held  every  week  and  special  meetings  at  other 
times  during  the  week.  Chairman  Winnett  disapproves  strongly  of 
the  election  of  commissioners. 

2.  Employees. 

The  employees  of  the  Commission  are  Clark  Perkins,  secretary,  at  a 
salary  of  $2,400.00 ;  U.  G.  Powell,  rate  expert  at  a  salary  of  $2,400.00 ; 
L.  E.  Wettling,  an  accountant ;  E.  C.  Kurd,  engineer  in  charge  of  phys- 
ical valuation;  a  reporter;  about  four  employees  of  the  rate  expert; 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  17 

three  stenographers  in  the  secretary's  office;  and  some  eleven  persons 
employed  by  the  engineer  in  making  physical  valuations. 

3.     Office  System. 

Secretary  Clark  Perkins  showed  me  his  office  in  detail.  His  largest 
correspondence  is  in  connection  with  informal  complaints.  These  are 
filed  in  card  board  folders  which  have  endorsed  thereon  the  necessary 
data  to  show  the  nature  and  disposition  of  the  case,  and  may  be  reached 
through  a  triple  card  index.  One  index  refers  to  the  complainant's 
name;  another  to  the  name  of  the  city;  and  the  third  to  the  defendant's 
name.  The  same  index  covers  formal  complaints  as  well.  Formal  cases 
are  filed  in  flexible  card  board  envelopes  and  the  exhibits  are  filed  in 
boxes  in  the  vault.  Applications  for  approval  of  changes  in  rates, 
stock  and  bond  issues  and  other  matters  are  all  filed  together  in  envel- 
opes similar  to  those  used  for  informal  complaints  and  are  indexed 
separately.  The  next  largest  class  of  correspondence  is  with  the  tele- 
phone companies,  of  which  there  are  over  six  hundred  in  Nebraska.  Mr. 
Perkins  has  a  separate  file  for  each  of  these  companies.  All  other  cor- 
respondence is  treated  as  miscellaneous  and  is  filed  alphabetically,  ex- 
cept correspondence  with  other  commissions,  which  is  separately  filed. 
Mr.  Perkins  has  in  his  desk  two  books,  one  for  informal  complaints  and 
the  other  for  applications.  As  each  complaint  and  application  comes 
in,  a  number  is  assigned  to  it  in  these  books. 

After  the  board  meetings,  the  secretary  himself  dictates  the  entire 
minutes.  He  then  pastes  them  into  a  book  from  which  they  are  later 
copied  into  the  regular  minute  book,  after  having  been  corrected  and 
approved.  The  original  minute  memorandum  book  is  preserved. 

III. 

STOCK  AND   BOND  LAW. 

House  Bill  No.  578,  Laws  of  1909,  gives  the  Commission  authority 
to  pass  on  all  proposed  stock,  bond  and  note  issues  of  all  public  service 
corporations  incorporated  or  hereafter  incorporated  under  or  by  virtue 
of  the  laws  of  Nebraska,  said  bonds,  stocks  and  notes  to  be  issued  only 
for  the  "acquisition  of  property,  the  construction,  completion,  exten- 
sion or  improvement  of  facilities,  the  improvement  or  maintenance  of 
service  or  the  discharge  or  refunding  of  obligations." 

"While  the  language  of  the  statute  is  limited  to  Nebraska  corporations, 
all  public  service  corporations  doing  business  in  the  state  submit  their 
proposed  stock  and  bond  issues  for  the  Commission's  approval,  so  as  to 
remove  clouds  on  the  issue  and  to  give  additional  stability  thereto.  The 
Missouri  Pacific  Railway  Company,  for  instance,  recently  secured  the 
Commission's  approval  of  a  twenty  million  dollar  bond  issue. 

Applications  for  approval  are  made  on  blanks  furnished  by  the  Com- 
mission, showing  in  detail  assets,  liabilities  and  purposes  of  issue.  The 


18  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 

largest  number  of  these  applications  have  come  in  from  telephone 
companies.  The  Commission  usually  approves  the  applications  as  a 
matter  of  form  and  enters  an  order  approving  the  issue,  specifying 
the  purposes  for  which  the  proceeds  may  be  used  and  directing  that  the 
corporation  render  to  it  on  blanks  furnished  by  the  Commission  an  ac- 
count of  all  moneys  received  from  the  sale  of  the  stocks  and  bonds  and 
of  the  purposes  for  which  the  money  was  actually  expended.  I  consider 
the  control  of  stocks  and  bonds  and  other  securities  to  be  one  of  the 
absolutely  essential  duties  of  a  railroad  or  public  service  commission, 
and  shall  discuss  the  matter  in  greater  detail  in  connection  with  the 
work  of  the  Wisconsin,  New  York,  and  Texas  Commissions. 

IV. 

TELEPHONE   COMPANIES. 

The  Commission  has  prescribed  a  set  of  forms  to  be  filled  out  by  tel- 
ephone companies,  showing  exchange  rates,  toll  rates  and  added  service 
to  connecting  exchanges,  and  has  also  prescribed  a  system  of  accounting, 
reference  to  which  will  be  found  in  the  published  reports.  A  large 
number  of  so-called  farmers'  telephone  companies  exist  in  the  state. 

V. 

ELECTRIC    STREET    RAILWAYS. 

The  Commission  has  control  over  these  railways  and  has  had  more 
trouble  with  them  than  with  any  other  kind  of  corporation.  The  cities 
of  Omaha  and  Lincoln  are  the  only  cities  in  Nebraska  having  such 
companies.  The  case  of  City  of  Havelock  vs.  The  Lincoln  Traction 
Company,  1910  Nebraska  Railway  Commission  Reports,  page  98.  toc^ 
up  a  very  considerable  amount  of  the  Commission's  time. 

VI. 
RATE    LITIGATION. 

The  legislature  of  1907,  at  the  time  of  enacting  the  present  Railroad 
Commission  law,  also  passed  statutes  (1)  reducing  express  rates  25  per 
cent;  (2)  establishing  a  maximum  2  cent  passenger  fare;  and  (3)  estab- 
lishing commodity  freight  rates.  Each  of  these  statutes  was  attacked 
in  the  courts.  The  Railway  Commission  secured  from  the  State  Supreme 
Court  a  decision  upholding  the  cut  in  express  rates.  The  United  States 
Express  Company  has  recently  appealed  the  case  to  the  United  States 
Supreme  Court. 

The  passenger  and  commodity  freight  rate  cases  were  removed  by  the 
railroad  companies  from  the  state  to  the  federal  courts,  which  courts 
issued  restraining  orders  under  which  the  railways  have  continued  to 
charge  their  former  rates.  These  cases  are  good  illustrations  of  the 
length  of  time  appeals  from  orders  of  railway  commissions  may  remain 


REPORT    ON    RAILROAD    AND    PUBLIC    SERVICE    COMMISSIONS.  19 

in  the  courts.  They  were  brought  in  1907  and  have  not  yet  been  tried. 
Rate  Expert  Powell  has  spent  a  very  considerable  amount  of  labor  in 
preparing  the  state 's  exhibits  in  these  cases.  They  are  prepared  on  the 
cost  accounting  theory.  Mr.  Powell  has  made  segregation  of  passenger 
train  and  freight  train  operating  expenses  as  to  each  of  the  accounts 
prescribed  by  the  Interstate  Commerce  Commission.  He  and  the 
entire  Nebraska  Commission  are  of  the  opinion  that  the  recent  decision 
rendered  by  Judge  Sanborn  in  the  Minnesota  rate  case  is  unfair  to  the 
state  in  the  matter  of  the  segregation  of  state  from  interstate  operating 
expenses.  Mr.  Powell  seems  to  be  a  rate  expert  of  very  unusual  ability. 

Because  of  the  passenger  and  commodity  freight  rate  cases,  the 
Commission  has  been  unable  to  issue  any  further  orders  reducing  pas- 
senger or  freight  rates.  The  rate  department  made  a  very  thorough 
investigation  into  class  rates  and  issued  a  tentative  order  continuing  first 
class  rates  as  established,  but  establishing  the  spread  on  a  fixed  basis. 
In  order  to  secure  the  necessary  data  for  the  order,  rate  expert  Powell 
employed  a  force  of  thirty  girls,  who  copied  data  from  each  intrastate 
waybill  issued  by  the  Rock  Island  and  the  Union  Pacific  during  the 
months  of  July  and  October,  1908,  and  January  and  April,  1909.  Mr. 
Powell  showed  me  the  bound  volumes,  of  which  there  must  have  been 
about  thirty,  containing  this  information,  by  stations.  The  record  as  to 
each  waybill  shows  both  the  compensation  which  the  railroad  companies 
received  and  that  which  they  would  have  received  had  the  order  gone 
into  effect.  This  work  cost  the  Commission  some  $5,000.00.  The  Com- 
mission did  not  finally  put  the  order  into  effect,  for  the  reason  that  it 
feared  that  such  action  would  prejudice  the  cases  already  pending  in 
the  federal  courts. 

The  experience  of  the  Nebraska  Commission  and  of  other  commis- 
sions, such  as  Oklahoma,  shows  that  if  the  railway  companies  can  once 
get  a  number  of  important  rate  cases  into  the  courts,  the  hands  of  the 
Commissions  are  very  largely  tied,  not  merely  as  to  the  subject-matter 
2  these  cases  but  also  as  to  all  other  rate  matters.  There  is  always  the 
:'ear  that  reductions  in  other  rates,  while  these  are  pending  in  the  courts, 
will  create  in  the  minds  of  the  federal  judges  an  impression  that  the 
Commission  is  a  radical  commission  which  is  making  excessive  reduc- 
tions in  rates. 

VII. 

MONTHLY    REPORTS    FROM    RAILROADS. 

The  Commission  receives  from  each  railroad  of  the  state  for  each 
month  a  report  on  printed  forms  prescribed  by  the  Commission,  show- 
ing for  each  station  the  following  information  as  to  interstate  business, 
both  that  which  is  shipped  from  and  received  at  each  station — cars  of 
wheat;  cars  of  corn;  cars  of  grain  products;  cars  of  live  stock;  other 
car  loads;  pounds  L.  C.  L. ;  pounds  C.  L. ;  revenue  L.  C.  L. ;  revenue 


20  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

C.  L. ;  passenger  ticket  sales.  The  same  information  is  also  given  as  to 
intrastate  business,  and  the  amount  thereof  is  then  appropriated  to 
the  state  of  Nebraska  on  a  mileage  basis.  This  information  is  important 
as  showing  the  amount  of  business  done  at  each  station,  particularly  if 
a  question  arises  as  to  the  adequacy  of  station  buildings  and  facilities 
at  any  particular  point. 

VIII. 

ANNUAL    REPORTS. 

Section  9  of  the  Nebraska  Act  prescribes  a  large  number  of  facts 
which  must  be  shown  in  the  annual  report.  In  order  to  secure  the 
necessary  facts  from  the  railroads,  the  Nebraska  Commission  uses  the 
Interstate  Commerce  Commission  form  as  a  basis.  In  addition  to  the 
information  required  therein,  Mr.  Powell  has  forced  the  railroads  to 
furnish  the  total  number  of  passengers  and  revenue  and  the  total 
volume  of  freight  and  revenue  moving;  (a)  entirely  within  the  state; 
(&)  originating  within  and  moving  out;  (c)  originating  without  and 
moving  into;  (d)  moving  entirely  through  without  originating  or  ter- 
minating within.  A  large  number  of  commissions,  following  the 
example  of  Nebraska,  use  the  Interstate  Commerce  Commission  form  of 
railroad  reports  as  a  basis,  and  then  add  certain  requirements. 

IX. 

FORM  OF  ACCOUNTS. 

The  Nebraska  Commission  has  prescribed  no  form  of  accounts,  except 
for  telephone  companies.  Mr.  Powell  said  that  the  Commission  had  not 
done  so  for  the  reason  that  if  any  controversy  arises,  the  Commission 
will  have  to  go  into  the  company's  books  anyway.  In  this  respect 
Nebraska  differs  very  materially  from  some  of  the  best  commissions  in 
the  country,  such  as  those  of  "Wisconsin  and  New  York,  which  have  pre- 
scribed systems  of  accounts  for  practically  all  the  railroads  and  public 
utilities  and  which  lay  great  stress  on  this  feature  of  their  work,  and 
have  established  extensive  and  efficient  statistical  and  accounting  depart- 
ments. 

X. 

PHYSICAL   VALUATION. 

A  statute  approved  April  5,  1909,  provides  that  it  shall  be  the  duty 
of  the  state  railway  commission  to  ascertain  the  physical  valuation  of 
each  railroad,  railway,  telegraph,  express,  telephone,  and  stock  yard 
company  within  the  state,  and  that  it  shall  make  findings  as  to  the  total 
value  of  each  railroad,  etc.,  the  number  of  miles  of  railroad  and  the 
average  value  of  line  or  track.  The  statute  also  prescribes  some  nine 
designated  elements,  the  sum  of  which  shall  constitute  the  physical 
valuation.  These  elements  are  not  in  all  respects  identical  with  those 


KEPORT   ON   RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  21 

which  are  prescribed  by  the  Interstate  Commerce  Commission.  The 
statute  shows  the  danger  of  having  the  legislature  go  into  the  details  of 
a  question  which  is  still  largely  in  a  formative  stage.  It  would  have 
been  far  wiser,  in  my  judgment,  to  have  provided  simply  that  the  Com- 
mission should  ascertain  the  value  of  the  properties  of  the  companies 
specified.  The  Commission  could  then  go  ahead  and  secure  light  from 
every  possible  source  and  be  guided  by  the  court  decisions  which  are 
appearing  from  time  to  time  on  this  question. 

Acting  under  this  statute,  a  force  of  some  twelve  men,  under  Engineer 
E.  C.  Hurd,  has  been  at  work  since  1909.  The  Commission  prepared 
forms  on  which  data  was  to  be  written  by  the  railway  companies  and 
secured  from  them  complete  profiles,  station  plats,  drawings,  and 
designs.  This  data  has  now  been  furnished  by  all  of  the  railroads  except 
the  Union  Pacific  and  the  Burlington.  The  Commission's  engineers 
check  over  the  quantities  from  the  profiles  which  are  furnished,  but  do 
no  actual  checking  of  quantities  in  the  field.  They  also  ride  over  the 
line  to  check  up  certain  physical  features,  such  as  stations  and  other 
buildings,  crossings,  telegraph  poles,  fences,  rails,  general  character  of 
the  land,  and  character  and  importance  of  towns. 

The  valuation  of  the  lands  was  found  to  be  the  most  difficult  task. 
The  greatest  point  of  controversy  between  the  railroad  commissions  and 
the  railroads  in  all  the  states  is  the  question  as  to  how  the  right  of  way 
and  terminal  grounds  of  the  railroad  companies  shall  be  valued.  The 
Nebraska  Commission  first  sent  out  post  cards  to  the  leading  bankers, 
public  men  and  farmers  of  the  different  counties,  asking  their  opinion 
as  to  the  value  of  land  of  different  designated  kinds  in  their  counties. 
Abstract  companies  were  then  paid  10  cents  a  piece  for  reports  as  to 
sales  of  land  within  a  year  or  two  in  the  vicinity  of  the  right  of  way. 
A  general  inspection  was  then  made  of  the  right  of  way  to  ascertain 
whether  it  was  better  or  poorer  than  the  general  run  of  land  in  the 
neighborhood.  Inspection  was  also  made  to  determine  how  much  more 
a  railroad  would  have  to  pay  above  the  value  of  surrounding  land  by 
reason  of  the  cutting  up  of  farms  and  damages  to  property  not  taken. 
Minnesota  found  an  average  multiple  of  three  and  applied  that  mul- 
tiple. Nebraska  applied  different  multiples  as  conditions  varied,  rang- 
ing from  one  and  twenty-five  hundredths  in  cities  to  over  three  in  the 
country,  but  averaging  two  and  six-tenths  in  the  country.  This  question 
as  to  whether  any  multiple  should  be  used,  and  if  so  what  multiple,  is 
one  of  the  most  important  questions  in  connection  with  securing  a  phys- 
ical valuation. 

Probably  the  best  work  which  has  been  done  by  the  Nebraska  engi- 
neering department  has  been  its  work  on  the  depreciation  of  equipment. 
To  ascertain  the  depreciation  of  freight  cars,  the  engineer  went  to  the 
railroad  car  accounting  records  and  looked  over  some  fifteen  thousand 


22  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE    COMMISSIONS. 

cars  of  various  kinds  to  find  out  when  they  were  discarded  or  rebuilt 
or  wrecked  or  put  into  work  train  service,  and  then  drew  a  curve  show- 
ing the  results  of  his  tabulation,  and  thus  ascertained  the  average 
length  of  life  of  each  type  of  car.  Similar  work  was  performed  with 
reference  to  passenger  train  cars,  engines,  work  equipment,  rails  and 
ties. 

The  engineer  found  the  items  returned  by  the  railroads  in  accounts 
1  to  33  of  the  Interstate  Commerce  Commission  to  be  about  right,  but 
found  it  necessary  to  make  very  material  reductions  in  the  accounts 
covering  general  expenses,  legal  expenses,  transportation  of  materials, 
equipment,  interest  and  commissions. 

After  receiving  the  report  of  its  engineer,  the  Commission  notifies 
the  owners  of  the  property  and  sets  a  time  not  less  than  thirty  days 
nor  more  than  sixty  days,  for  appearance  by  the  owner,  at  which  time 
he  may  show  cause  why  the  valuation  as  found  by  the  Commission 
should  be  altered.  The  statute  contains  no  provision  as  to  the  effect  of 
the  Commission's  findings  nor  as  to  the  purpose  for  which  the  valuations 
are  to  be  used. 

The  findings  of  the  Commission  with  reference  to  the  valuation  of 
the  first  of  the  railway  companies  simply  recite,  in  accordance  with  the 
provisions  of  the  statute,  that  on  July  1,  1910,  the  value  of  the  road  was 
a  certain  sum,  its  mileage  so  and  so  much  and  its  value  per  mile  so  and 
so  much. 

XI. 

ATTITUDE    TOWARD    PHYSICAL    VALUATION. 

The  Nebraska  Commission  regards  the  cost  of  reproduction  of  rail- 
roads, as  a  basis  for  fixing  rates,  somewhat  in  a  light  of  a  hot  potato, 
especially  since  Judge  Sanborn  in  the  Minnesota  case  held  that  the 
railroads  are  entitled  to  a  7  per  cent  return  on  the  extremely  high  cost 
of  reproduction  found  in  that  case,  ignoring  the  other  elements  sug- 
gested in  Smyth  vs.  Ames.  The  commissioners,  when  I  asked  them  what 
they  were  going  to  do  with  the  valuation  when  they  ascertained  it,  said 
that  they  did  not  know.  Because  of  Judge  Sanborn 's  decision  and  of 
the  uncertainty  as  to  what  test  the  United  States  Supreme  Court  may 
ultimately  establish  as  the  proper  basis  of  fixing  rates,  the  Nebraska 
Commission  seems  to  assume  a  half-hearted  attitude  towards  the  entire 
question  of  physical  valuation. 

XII. 

NEW   PROCEDURE  ON  APPEAL. 

The  legislature  of  1911  amended  section  7  of  the  Railway  Commission 
Act  by  providing  that  proceedings  to  reverse,  vacate  or  modify  orders 
of  the  state  Commission  shall  be  brought  directly  in  the  Supreme 
Court  of  the  state ;  that  the  evidence  taken  before  the  Commission  shall 


REPORT    ON   RAILROAD    AND    PUBLIC    SERVICE    COMMISSIONS.  23 

alone  be  considered;  that  the  time  of  appeal  shall  be  limited  to  three 
months  and  that  no  order  shall  be  held  up  without  the  filing  of  a 
supersedeas  bond  to  be  first  approved  by  the  Commission.  These  pro- 
visions are  in  line  with  those  contained  in  the  most  recent  statutes, 
except  that  they  are  not  as  complete  or  as  far-reaching  as  those  now 
obtaining  in  Washington,  Wisconsin  and  Oklahoma. 

Commissioner  Clarke  told  me  that  in  his  opinion  there  is  no  doubt, 
as  the  constitution  of  Nebraska  now  stands,  that  these  provisions  are 
valid.  The  first  test  of  these  provisions  will  probably  be  made  in  con- 
nection with  an  order  of  the  Commission  directing  the  erection  of  a 
brick  station  building  at  Wayne.  A  request  by  the  railroad  for  a  certi- 
fied copy  of  the  proceedings  before  the  Commission  in  this  matter  came 
in  while  I  was  visiting  the  Commission. 

XIIL 

CHANGES    IN    SCHEDULES. 

The  statute  provides  that  the  carriers  shall  file  with  the  Commission 
all  their  schedules  of  rates  in  effect  on  January  1,  1907  (this  being 
before  the  date  of  the  statute),  and  that  thereafter  no  rate  shall  be 
changed,  either  raised  or  lowered,  without  the  Commission's  consent. 
Dr.  Winnett  thinks  that  this  is  a  salutary  provision  and  that  it  tends 
to  produce  stability  of  rates.  The  Commission  approves  reductions 
almost  as  a  matter  of  course,  but  almost  always  holds  a  hearing  in  cases 
of  a  contemplated  increase. 


24  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 


MINNESOTA. 

I. 

INTRODUCTION. 

The  Railroad  and  Warehouse  Commission  of  Minnesota  was  created 
by  act  of  1899.  The  Commission  has  jurisdiction  over  all  railroads 
except  street  railways  (in  so  far  as  relates  to  the  carriage  of  persons  and 
property  wholly  within  the  limits  of  a  municipality)  and  also  over  all 
express  companies  and  public  warehouses,  including  commission  houses 
and  grain  elevators.  The  Commission  does  not  have  control  over  public 
utilities.  A  proposition  to  extend  the  jurisdiction  of  the  Commission 
over  such  utilities  was  presented  to  the  last  legislature  but  was  defeated 
by  the  rural  telephone  companies,  who  objected  to  the  clause  giving  to 
the  Commission  power  to  order  in  physical  connections  between  tele- 
phone companies.  Commissioner  Elmquist  was  of  the  opinion  that  a 
public  utilities  statute  containing  the  telephone  physical  connections 
clause  would  be  passed  by  the  next  session  of  the  legislature. 

Minnesota  does  not  have  a  stock  and  bond  law  nor  a  public  con- 
venience and  necessity  law.  The  work  of  the  Commission  is  limited  to 
the  fixing  of  rates  and  the  regulation  of  service  of  railroads'  and 
express  companies  and  public  warehouses,  as  above  indicated. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.  The  Commission. 

The  commissioners  are  Judge  Ira  B.  Mills,  chairman,  Charles  F. 
Staples,  and  Charles  E.  Elmquist.  Judge  Mills  is  a  lawyer  and  has 
been  a  member  of  the  Commission  for  more  than  ten  years.  Mr.  Staples 
is  a  farmer,  a  man  of  considerable  dignity  and  apparently  much  ability. 
and  has  also  served  more  than  ten  years.  Mr.  Elmquist  is  a  younger 
man,  a  lawyer,  energetic  and  apparently  well  posted,  and  has  been  a 
member  of  the  Commission  about  four  years. 

The  commissioners  are  elected  for  a  term  of  six  years,  and  receive  a 
salary  of  $4.500.00  per  annum.  They  devote  their  entire  time  to  the 
duties  of  the  office,  and  are  in  the  office  every  week  day,  except  when 
one  of  them  is  out  on  an  inspection  tour.  Commissioner  Elmquist  was 
strongly  opposed  to  a  board  of  five  members  for  the  reason  that  three 
can  do  much  better  executive  work. 

2.  Employees. 

The  employees  of  the  Commission  are  A.  C.  Clausen,  secretary,  who 
attends  largely  to  the  warehouse  business  of  the  commission  and  pre- 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  25 

pares  a  part  of  the  annual  report;  Thomas  Yapp,  assistant  secretary, 
who  attends  to  the  details  of  the  railroad  and  express  work  of  the 
Commission  and  is  an  active  and  capable  man;  D.  J.  Jurgensen,  engi- 
neer in  charge  of  physical  valuation ;  one  rate  clerk  (but  no  rate  expert)  ; 
two  clerks  and  three  stenographers.  The  act  of  April  13,  1911,  appro- 
priates the  sum  of  $30,000.00  for  the  annual  expenses  of  the  Commission. 
This  does  not  include  the  amount  of  money  expended  in  the  Minnesota 
rate  case. 

3.     Office  System. 

But  little  attention  is  paid  by  the  Commission  to  the  matter  of  office 
system.  No  minutes  are  kept.  Orders  are  prepared  informally  and 
sent  out  by  letter.  Most  of  the  business  of  the  Commission  is  done 
informally  in  the  office.  Schedules  of  rates  are  filed  by  railroads  and 
are  indexed  in  a  book.  Mr.  Yapp  prefers  a  book  to  a  card  system  by 
reason  of  its  greater  permanency. 

III. 

EXPRESS    INVESTIGATION. 

I  went  quite  thoroughly  into  the  investigation  which  the  Minnesota 
Commission  has  been  conducting  into  the  express  rates  of  Wells-Fargo 
&  Company.  The  Commission  was  told  by  Wells-Fargo  &  Company  that 
they  could  not  secure  the  information  which  they  desired  except  by 
sending  a  force  of  men  to  the  New  York  office  of  the  express  company. 
The  Commission,  accordingly,  sent  a  number  of  men  to  New  York,  where 
they  spent  something  over  a  year  in  going  over  all  the  waybills  covering 
a  period  of  two  months.  Mr.  Yapp  showed  me  the  books — about  nine 
feet  of  them — into  which  the  transcript  of  the  records  of  the  Express 
Company  in  New  York  was  made.  These  books  contain  spaces  for  the 
names  of  the  places  of  origin  and  destination  of  each  package  affecting 
Minnesota  business,  and  also  columns  for  the  different  rates;  thus,  a, 
b,  c,  d,  e,  10,  15,  etc.,  up  to  and  including  100,  and  separate  books  for 
the  special  rates  on  poultry,  milk,  laundry,  beer,  and  a  few  other  com- 
modities. There  are  also  separate  books  for  interstate,  intrastate,  intra- 
interstate,  and  inter-intrastate  shipments.  The  books  also  show  the 
revenue  derived,  the  number  of  .transactions  and  number  of  packages 
and,  in  the  case  of  the  interstate  business,  the  amount  of  the  revenue 
chargeable  to  Minnesota.  This  amount  is  ascertained  on  the  "rate- 
prorate"  basis;  i.  e.,  the  rate  from  the  outside  point  to  the  Minnesota 
gateway  through  which  it  passes  is  to  the  rate  from  the  Minnesota  gate- 
way to  the  Minnesota  point,  as  the  earnings  received  by  the  express 
company  are  to  the  amount  of  earnings  assigned  to  Minnesota.  The 
receipts  from  money  orders,  custom  house  brokerage,  and  similar  items 
were  taken  off  for  the  whole  system,  and  a  proportion  of  them  was  then 
allocated  to  Minnesota. 


26  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

The  Minnesota  employees  went  through  some  nine  million  waybills 
in  Xcw  York  City  to  ascertain  those  affecting  Minnesota  business,  and 
found  some  125,000  for  the  month  of  August,  1909,  and  225,000  for 
the  month  of  December,  1909.  Wells-Fargo  &  Company  likewise  had 
a  force  of  men  rx;i  mining  the  same  waybills.  Mr.  Yapp  told  me  that 
this  work  had  cost  the  Minnesota  Commission  some  $30,000.00.  It  is  the 
most  thorough  work  which  has  been  done  in  this  country  in  the  matter 
of  express  investigations. 

The  testimony  concerning  the  express  end  of  the  business  had  all  been 
presented  when  I  was  in  St.  Paul,  and  I  read  over  the  entire  transcript. 
The  express  company  presented  no  evidence.  I  have  110  doubt  whatso- 
ever that  the  express  company  is  simply  waiting  to  tie  the  hands  of  the 
Commission  in  the  courts.  The  Minnesota  Commission  is  also  examining 
the  railroad  end  of  the  express  business,  and  will  take  testimony  as  to 
this  matter  before  finally  deciding  the  case.  I  examined  carefully  all 
the  exhibits  introduced  by  the  state,  for  the  purpose  of  using  this 
information  in  our  own  express  investigation. 

The  results  secured  by  the  Minnesota  Commission  showed  that  the 
express  company  was  making  a  profit  of  some  18  or  19  per  cent  on  that 
part  of  its  property  which  could  fairly  be  chargeable  to  its  state  busi- 
ness, and  some  74  per  cent  on  that  part  of  its  Minnesota  property  which 
is  chargeable  to  the  interstate  business. 

IV. 

MINNESOTA    RATE    CASE. 

The  legislature  of  1907  passed  a  2  cent  maximum  passenger  fare  law 
and  a  maximum  commodity  freight  law.  The  passenger  rates  went 
into  effect,  and  the  freight  rates  were  about  to  go  into  effect  when  stock- 
holders of  the  railroads  affected  secured  an  injunction  from  the  federal 
courts.  The  matter  was  thereafter  referred  to  Commissioner  Otis  as 
referee.  After  taking  some  twenty  volumes  of  testimony  and  going  into 
the  entire  matter  of  valuation  of  the  Minnesota  railroads  de  novo, 
regardless  of  the  finding  of  the  Minnesota  Commission  therein,  Com- 
missioner Otis  rendered  a  report  which  was  affirmed  by  Judge  Sanborn 
in  the  now  famous  Minnesota  rate  decision.  Judge  Sanborn  disregarded 
every  basis  of  rate  fixing  except  that  of  the  cost  of  reproduction  of 
the  property  and  found  a  cost  in  this  case,  which,  according  to  the  gen- 
eral consensus  of  opinion,  is  at  least  50  per  cent  in  excess  of  the  cost  as 
shown  by  the  evidence  in  the  case.  He  also  found  an  interference  by 
the  proposed  state  rates  with  interstate  commerce. 

The  Minnesota  Commission,  as  well  as  the  other  Northern  and  Middle 
Western  Commissions  which  I  visited,  are  very  much  exercised  over  the 
Minnesota  rate  case.  I  had  a  talk  with  Judge  O'Brien,  who  is  handling 
the  case  for  the  state  before  the  United  States  Supreme  Court.  He  told 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS.  27 

me  that  the  motions  to  hear  the  Oregon,  Missouri,  and  Arkansas  cases 
contemporaneously  with  the  Minnesota  case  at  the  October  term  had 
been  granted.  Judge  O'Brien  pointed  out  the  enormous  variance 
between  the  original  cost  and  the  present  assigned  value  of  the  railroad 
properties  involved  in  the  case.  He  regards  the  four  hundred  foot  strip 
of  right  of  way  acquired  from  the  government  as  a  franchise  on  which 
the  railroad  is  not  entitled  to  a  return.  He  also  denies  the  right  of  the 
railroads  to  multiply  the  present  market  value  of  the  land  by  a  multiple 
to  represent  the  increased  cost  of  securing  the  same.  Judge  O'Brien 
thought  that  he  sawT  a  preconcerted  plot  on  the  part  of  the  railroads  to 
urge  on  a  number  of  the  state  commissions  to  adopt  the  cost  of  repro- 
duction as  the  basis  of  rate  fixing. 

The  Minnesota  commissioners  pointed  out  to  me  that  as  to  more  than 
half  of  the  railroads  of  the  state,  the  value  of  the  stock  and  bonds  is 
greater  than  the  Commission's  estimate  as  to  the  value  of  the  prop- 
erties, but  is  less  than  the  cost  of  reproduction  as  returned  by  the  rail- 
way companies.  To  meet  the  decision  in  the  Minnesota  rate  case,  the 
legislature  of  1909  passed  a  statute  providing  that  whenever  a  common 
carrier  resists  the  enforcement  of  an  order  of  the  Commission  prescrib- 
ing rates,  it  shall  be  the  duty  of  such  carrier  to  keep  an  account  of 
every  charge  made  by  it  for  any  service  to  which  such  rates  apply, 
showing  in  each  case  the  name  and  address  of  the  consignor  and  con- 
signee, the  date  of  the  transaction,  the  stations  between  which  the  busi- 
ness was  carried,  and  the  amount  actually  charged,  and  that  which 
would  have  been  charged  under  the  rates  prescribed  by  the  Commis- 
sion. A  report  containing  these  matters  must  be  made  to  the  Commis- 
sion every  month.  Within  sixty  days  after  the  final  determination  of 
the  proceedings,  the  carrier  must  pay  to  the  Railroad  and  Warehouse 
Commission,  for  the  benefit  of  the  parties  entitled  thereto,  all  sums  col- 
lected by  it  in  excess  of  the  rates  finally  prescribed  by  the  court,  with 
interest,  and  the  Commission  thereupon  pays  out  these  moneys  to  the 
parties  entitled'  thereto.  All  amounts  not  claimed  are  paid  by  the  Com- 
mission into  the  state  treasury  for  the  benefit  of  the  general  revenue 
fund.  Under  this  statute,  the  railroads  involved  in  the  Minnesota  rate 
case  are  now  keeping  books  and  making  returns  to  the  Commission. 

In  concluding  this  subject,  I  would  say  that  the  Minnesota  Commis- 
sion is  even  more  exercised  over  the  decision  with  reference  to  the  rate 
fixing  basis  than  over  that  part  of  the  decision  which  refers  to  interfer- 
ence with  interstate  commerce. 

V. 

FEDERAL  COURTS. 

One  of  the  greatest  difficulties  facing  certain  of  the  state  commissions 
in  districts  in  which  the  federal  judges  seem  to  be  unfriendly,  is  the 
3 — RC 


28  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE    COMMISSIONS. 

facility  with  which  the  corporations  can  secure  from  such  judsres 
restraining  orders  and  temporary  injunctions  tying  the  hands  of  the 
Commission  for  several  years,  until  the  cases  are  determined.  However 
carefully  a  statute  may  prescribe  the  procedure  in  cases  on  appeal  from 
the  orders  of  the  Commission,  the  federal  courts  are  not  bound  by  such 
provisions  pnd  proceed  according  to  their  own  rules.  Chairman  Mills, 
while  chairman  of  the  committee  on  legislation  of  the  National  Asso- 
ciation of  Railway  Commissioners,  accordingly  presented,  and  the 
association  adopted,  a  resolution  to  be  adopted  by  the  different  state 
legislatures,  calling  upon  their  representatives  in  congress  to  pass  a 
statute  providing  that  litigation  affecting  state  railway  and  public 
service  commissions  should  be  carried  through  the  state  courts  first 
before  being  taken  into  the  federal  courts.  The  Minnesota  legislature 
passed  such  a  resolution,  but  no  other  state  has  done  so. 

VI. 

CHANGES    IN    RATES. 

Changes  in  rates  become  effective  on  ten  days'  notice,  but  only  if 
approved  by  the  Commission.  Mr.  Yapp  thinks  it  a  wise  provision  to 
have  the  Commission  approve  every  change  in  rates.  He  considers  this 
method  a  very  desirable  one  for  the  reason  that  the  Commission  in  this 
way  secures  a  whip  handle. 

Reductions  in  rates  are  allowed  as  a  matter  of  course,  but  if  they 
affect  common  points  Mr.  Yapp  generally  telephones  to  the  other  com- 
panies affected  and  asks  them  if  they  wish  to  put  in  the  same  rate.  This 
is  done  in  a  spirit  of  fairness  to  prevent  one  railroad  from  securing  an 
advantage  over  others  by  means  of  "midnight  tariffs." 

VII. 

GRADE   CROSSINGS. 

The  statutes  of  Minnesota  do  not  give  authority  to  the  state  Com- 
mission to  prescribe  a  separation  of  grade  crossings.  Mr.  Yapp  told 
me  that  these  matters  were  taken  care  of  by  the  city  authorities  and 
that  no  authority  to  order  a  separation  of  grades  exists  as  to  those 
portions  of  the  state  which  are  outside  of  city  limits.  He  thinks  it 
well  to  handle  the  problem  while  it  is  in  its  infancy,  as  proposed  in 
California. 

VIII. 

PHYSICAL    VALUATION. 

I  had  a  long  talk  with  Engineer  Jurgensen  with  reference  to  the 
work  of  the  Commission  in  ascertaining  the  value  of  the  railroads  of 
Minnesota.  This  work  took  about  three  years.  The  Commission 
employed  some  two  to  fifty  men,  with  an  average  of  about  sixteen  to 
eighteen.  During  the  first  year,  but  little  was  accomplished.  It  was 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  29 

found  impossible  to  ascertain  the  original  cost  of  construction.  The 
railroad  companies  furnished  to  the  commission  information  concerning 
the  present  value  of  their  systems.  The  chief  work  of  the  engineering 
department  of  the  Commission  consisted  in  checking  over  these  returns. 
To  ascertain  the  value  of  the  rights  of  way  of  the  railroads,  abstracts 
of  sales  in  the  vicinity  were  taken  from  the  records.  A  total  of  about 
1,500,000  sales  were  examined  by  the  Commission  in  reaching  its  con- 
clusions. Considerable  difficulty  was  encountered  on  the  question  as  to 
how  to  estimate  the  cost  of  reproduction.  The  railroads  contend  that 
this  means  the  cost  of  acquiring  the  lands  as  of  to-day  and  that  they  are 
entitled  to  multiply  the  present  real  value  of  adjacent  lands  by  some 
multiple  such  as  the  figure  three  in  order  to  ascertain  the  present  cost  of 
reproduction.  The  Commission  denies  the  right  to  use  such  a  multiple. 
The  Commission  accordingly  prepared  valuations  on  both  theories. 

None  of  the  railroads  made  returns  as  to  the  present  value  of  their 
properties.  Their  returns  were  simply  as  to  the  cost  of  reproduction. 
It  is  impossible  for  the  Commission,  by  reason  of  the  age  of  the  railroads, 
to  ascertain  the  original  cost,  otherwise  it  certainly  would  have  done  so. 

The  statutes  of  1909,  chapter  147,  provide  that  the  Commission  shall 
at  all  times  keep  up  the  physical  valuations  of  the  railroads  of  the 
state.  Under  this  statute  the  engineer  sends  out  each  year  forms  for 
additions  and  betterments  and  deductions. 

IX. 

FORM   OF  ACCOUNTS. 

Chapter  327  of  the  Laws  of  1911  makes  it  the  duty  of  every  railroad 
to  keep  its  accounts  in  such  form  as  to  show  the  total  revenue  and  the 
total  operating  expenses  connected  both  with  local  and  through  traffic, 
the  number  of  tons  of  freight  carried  one  mile  both  on  local  and 
through  trains  and  the  total  car,  engine  and  other  mileage  of  both 
interstate  and  intrastate  freight.  The  Commission  is  now  engaged 
in  working  out  the  form  of  these  accounts.  There  is  no  doubt  in  my 
mind  that  this  statute  is  the  direct  result  of  the  decision  in  the  Min- 
nesota rate  case  and  that  its  purpose  is  to  force  the  railroad  companies 
to  keep  their  accounts  at  all  times  in  such  condition  as  to  enable  the 
state  Commission  to  secure  readily  the  information  necessary  in  case 
any  of  its  orders  fixing  rates  are  attacked. 

X. 

SERVICE    AND    FACILITIES. 

Considerably  over  three  fourths  of  the  present  work  of  the  Com- 
mission deals  .with  matters  affecting  service  and  facilities.  About 
95  per  cent  of  these  matters  are  settled  informally  by  drawing  them 
to  the  attention  of  the  railway  company  affected.  This  experience  of 


30  REPORT   ON  RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS. 

the  Minnesota  Commission  emphasizes  the  necessity  of  giving  the 
State  Railroad  Commission  control  over  these  matters  in  addition  to 
the  control  of  rates. 

XL 

INTERSTATE  COMMERCE. 

The  Commission  takes  up  with  the  railroads  a  large  number  of  mat- 
ters affecting  interstate  commerce  and  settles  most  of  them  informally. 
In  this  way,  the  Commission  performs  a  great  service  for  the  citizens  of 
Minnesota.  If  the  matter  is  one  of  public  importance,  the  state  Com- 
mission files  the  petition  with  the  Interstate  Commerce  Commission, 
appears  as  party  complainant  and  conducts  the  litigation  at  the  expense 
of  the  state. 

XII. 

ACCIDENT   REPORTS. 

Whenever  an  accident  occurs  in  connection  with  railroad  operation, 
the  railroad  company  at  once  telephones  or  telegraphs  to  the  Commis- 
sion ;  then  follows  a  preliminary  accident  report  and  later  a  final 
report.  These  reports  are  kept  in  a  large  file  arranged  consecutively 
by  numbers.  An  index  kept  in  a  large  book  shows  the  name  of  the  town 
or  city,  the  name  of  the  person,  the  date  of  telegraphic  or  telephonic 
report,  the  date  of  the  second  and  third  reports  and  the  number  of  the 
case.  These  reports  are  entered  by  railroads  and  are  arranged  alpha- 
betically. 

XIII. 

LITIGATION. 

The  legislature  of  Minnesota  in  its  sessions  for  1905,  1907,  1909 
and  1911,  passed  a  large  number  of  special  acts  affecting  the  Com- 
mission. Nearly  all  of  these  acts  deal  with  matters  of  detail  as  to 
which,  in  my  judgment,  it  would  have  been  wiser  to  have  given  general 
powers  to  the  Commission.  For  instance,  special  acts  were  passed  to 
provide  that  railroads  must  use  the  same  names  for  stations  as  the 
names  of  the  cities  within  which  the  stations  are  located ;  that  the  time 
of  the  arrival  of  passenger  trains  must  be  bulletined ;  that  the  commis- 
sion shall  have  jurisdiction  over  track  scales ;  that  the  commission  shall 
have  authority  to  keep  up  physical  valuations  from  year  to  year; 
that  railway  companies  shall  clean  ditches  and  culverts  along  roadbeds, 
etc.  The  difficulty  which  Minnesota  has  had  with  these  matters  would 
seem  to  show  the  wisdom  of  giving  to  the  Commission  general  powers 
by  statute  over  all  matters  affecting  the  rates  and  service  of  the  public 
service  corporations  affected.  The  Commission  can  then  work  out  the 
details  in  such  manner  as  experience  may  show  to  be  wise. 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  31 


WISCONSIN. 

I. 
INTRODUCTION. 

The  Railroad  Commission  of  Wisconsin  was  created  by  statute  of 
1905,  and  is  largely  the  work  of  the  then  Governor,  Eobert  M.  La  Fol- 
lette.  Before  that  time,  the  state  had  a  railroad  commissioner,  whose 
chief  function  was  to  publish  the  reports  transmitted  by  the  carriers. 
In  1907,  the  legislature  also  passed  a  public  utilities  law  conferring 
upon  the  state  railroad  commission  authority  over  public  utilities.  Both 
these  statutes  were  amended  in  1909  and  1911.  Under  the  railroad 
commission  statute,  the  Commission  has  jurisdiction  over  commercial, 
street  and  interurban  railways,  express  companies,  telegraph  companies 
and  common  carriers.  Under  the  public  utilities  law,  it  acquired  addi- 
tional jurisdiction  over  telephone,  heat,  light,  water  and  power  com- 
panies, including  those  owned  or  operated  by  municipalities. 

Wisconsin  has  a  stock  and  bond  law  enacted  in  1907  and  materially 
amended  in  1911 ;  a  public  convenience  and  necessity  law  enacted  in 
1907 ;  and  an  indeterminate  permit  law  providing  indeterminate  fran- 
chises and  for  purchase  by  municipalities,  enacted  in  1907  and  materi- 
ally amended  in  1911. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.     The  Commission. 

The  commissioners  are  John  H.  Roemer,  chairman,  Halford  Erick- 
son  and  David  Harlowe.  The  statute  provides  that  one  of  the  com- 
missioners shall  have  a  general  knowledge  of  railroad  law  and  that  each 
of  the  others  shall  have  a  general  understanding  of  matters  relating 
to  railroad  transportation.  Mr.  Roemer  within  the  last  year  took  the 
place  of  Professor  B.  H.  Meyer,  who  was  recently  appointed  to  the 
Interstate  Commerce  Commission.  Mr.  Roemer  is  an  attorney  and 
performs  all  the  legal  work  of  the  Commission.  Mr.  Erickson  was 
formerly  a  railroad  auditor  and  is  an  economist  and  statistician  of  very 
exceptional  ability.  He  seems  to  secure  the  data  for  most  of  the  rate 
decisions  of  the  Commission,  and  has  worked  out  carefully  a  plan  for 
the  segregation  of  operating  expenses  between  freight  and  passenger 
traffic.  He  is  also  practically  the  head  of  the  department  of  statistics 
and  accounts,  one  of  the  most  important  departments  of  the  Com- 
mission. Mr.  Harlowe  was  recently  appointed  on  the  resignation  of 
Professor  Meyer.  He  was  traffic  manager  of  one  of  the  large  Milwaukee 
commercial  firms. 


32  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

The  commissioners  are  appointed  by  the  Governor  for  periods  of 
six  years  and  receive  a  salary  of  $5,000.00.  All  of  them  devote  their 
entire  time  to  the  work  of  the  Commission.  Mr.  Roemer  tells  me  that 
he  often  works  into  the  night  and  I  am  confident  Mr.  Erickson  does  the 
same.  In  my  opinion  the  splendid  work  of  the  Wisconsin  Commission 
is  largely  due  to  the  ability  of  the  commissioners  and  to  their  close 
personal  attention  to  the  work.  A  spirit  of  scholarly  accuracy  and 
thoroughness  pervades  the  entire  work  of  the  Commission.  The  Com- 
mission takes  no  short  cuts  and  makes  very  few  guesses.  Every  problem 
is  worked  out  with  great  care  and  no  decisions  are  rendered  until  the 
Commission  has  all  the  facts  at  its  disposal.  In  my  judgment,  the 
thorough  and  scholarly  spirit  of  the  work  is  largely  the  result  of 
the  intimate  relation  which  exists  between  the  Commission  and  the 
professors  and  alumni  of  the  State  University. 

2.  Employees. 

The  Commission  divides  its  work  into  three  department  (1)  adminis- 
trative; (2)  engineering;  (3)  statistical  and  accounting. 

The  administrative  department,  besides  the  commissioners,  consists 
of  J.  M.  Winterbotham,  the  secretary,  who  receives  a  salary  of  $2,500.00 
per  year;  a  clerk  for  each  commissioner,  to  work  up  law  points  and 
digest  testimony;  and  about  a  half  dozen  stenographers  and  reporters. 

The  engineering  department  is  headed  by  Professor  Pence,  professor 
of  railway  engineering  in  the  University  of  Wisconsin.  The  w^ork  of 
this  department  is  subdivided  into  the  work  of  physical  valuation,  and 
service  and  field  inspection.  To  perform  the  work  of  physical  valuation, 
Professor  Pence  has  men  who  are  especially  qualified  to  value  real  estate, 
railroad  properties,  gas  and  electrical  plants,  water  works,  telephone 
plants,  etc.  Professor  Burgess  of  the  Department  of  Mechanics,  of  the 
State  University,  is  advisor  in  the  work  of  service  and  field  inspection. 
This  work  also  is  subdivided,  Mr.  Cadby  having  charge  of  gas,  electric 
and  telephone  inspection,  Professor  Mack  of  the  water  plants,  etc. 

The  statistical  and  accounting  department  is  headed  by  Mr.  Edwin 
Gruhl,  who  has  immediate  charge  of  the  statistics  and  accounts  of  the 
public  utilities,  while  Mr.  Schneider  has  charge  of  similar  work  in 
connection  with  railway  and  express  work.  Mr.  Hogan  and  one  assis- 
tant have  charge  of  railway  and  express  tariffs.  Some  five  or  six 
men  in  the  department  are  occupied  all  the  time  with  matters  in  con- 
troversy before  the  Commission  and  special  problem  work. 

3.  Office  System. 

The  secretary  receives  and  distributes  all  mail.  All  letters  when 
answered  are  returned  to  him  and  he  sends  out  the  answers  in  the  name 
of  the  Commission  by  himself  as  secretary.  All  formal  and  informal 
complaints  are  separately  numbered  and  filed  both  as  to  railroad  cases 


REPORT   ON   RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  33 

and  public  utility  cases.  A  separate  file  is  also  kept  for  all  applica- 
tions, such  as  for  leave  to  issue  stock  and  bonds  and  to  build  extensions. 
An  alphabetical  file  is  also  kept. 

III. 

PROCEDURE  ON  APPEAL. 

The  Wisconsin  Railway  and  Public  Utilities  acts  both  provide  for  an 
action  in  the  Circuit  Court  of  Dane  County  to  set  aside  the  orders  of  the 
Commission.  If  any  new  evidence  is  presented,  the  court  must  certify 
the  case  back  to  the  Commission,,  which  then  reviews  its  order  in  the 
light  of  the  new  evidence,  and  thereafter  returns  its  findings  to  the 
court.  An  appeal  directly  to  the  Supreme  Court  was  not  provided  for, 
because  of  a  constitutional  difficulty  involving  a  question  whether  an 
appeal  would  lie  directly  to  the  Supreme  Court  from  an  administrative 
board.  The  legislature  of  1911  passed  an  amendment  to  the  Railway 
and  Public  Utilities  acts  providing  for  notice  to  stockholders  and  bond- 
holders, by  publication,  in  case  of  the  acquisition  of  a  public  utility  by 
a  municipality,  so  that  they  might  have  their  day  before  the  Commis- 
sion. Mr.  Roemer  is  of  the  opinion,  under  the  Prentiss  case,  211  U.  S. 
210,  that  if  the  state  statute  provides  the  procedure  for  an  appeal,  with 
power  on  the  part  of  the  court  to  revise  the  rate,  that  procedure  must 
be  followed  before  the  case  can  go  into  the  federal  courts.  Mr.  Roemer 
prefers  the  Wisconsin  procedure  to  the  right  of  review  provided  by  the 
Washington  statute,  for  the  reason  that  he  doubts  the  applicability  of 
a  writ  of  review  to  a  case  in  which  the  Commission  is  authorized  to  con- 
sider evidence  extraneous  to  the  record.  This  objection  has  not  pre- 
vailed in  other  states,  such  as  New  York,  Nebraska,  and  Oklahoma,  in 
which  the  remedy  is  review,  and  in  which  no  point  has  ever  been  raised 
to  the  effect  that  this  is  not  the  proper  remedy.  The  New  York  Com- 
mission, however,  is  careful  to  put  into  the  record  all  the  evidence,  so 
far  as  possible,  which  was  in  any  way  considered  by  it.  Mr.  Roemer 
states  that  the  practical  effect  of  the  Wisconsin  procedure  is  to  force 
the  corporations  to  apply  for  a  rehearing  before  the  Commission — this 
rehearing  being  granted  as  a  matter  of  course. 

IV. 

RATE  FIXING. 

The  rate  fixing  basis  of  the  Wisconsin  Commission,  as  explained  to 
me  by  Chairman  Roemer  and  Commissioner  Erickson,  is  the  cost  of 
reproduction  of  the  properties  affected,  subtracting  depreciation  and 
adding  an  amount  for  going  concern  value.  In  determining  the  present 
value,  the  Commission  disregards  density  of  traffic,  density  of  popula- 
tion, and  market  value  of  stocks  and  bonds.  In  response  to  a  sugges- 
tion that  the  Oregon,  Nebraska,  and  Minnesota  commissions  were  very 


34  EEPOET   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

much  concerned  over  the  physical  valuation  basis  for  rate  fixing  and  to 
the  possibility  of  an  unreasonable  increase  in  rates  resulting  from  in- 
crease in  land  values,  Chairman  Roenier  said  that  he  could  not  see  the 
justice  of  permitting  an  increase  in  land  values  to  owners  adjacent  to 
a  railroad  and  denying  the  railroad  a  return  on  its  own  increased  value. 
He  admitted,  however,  that  a  real  problem  arises  from  the  great  increase 
in  the  value  of  terminal  property  and  also  that  a  limit  will  have  to  be 
placed  on  rates  based  on  increasing  land  value.  Very  few  of  the  Com- 
missions seem  to  have  thought  as  far  as  this,  and  none  of  them  to  have 
reached  a  solution.  Chairman  Roemer  believes  that  a  railroad  or 
utility  is  entitled  to  a  rate  of  six  per  cent  on  its  market  value,  this 
being  usually  sufficient  for  five  per  cent  interest  on  its  bonds  and  seven 
per  cent  on  its  capital  stock. 

The  rate  multiple  hitherto  used  by  the  Wisconsin  Commission  has 
been  two  and  a  half.  Commissioner  Erickson  has  serious  doubts  as  to 
whether  any  amount  ought  to  be  allowed  over  the  value  of  the  adjoin- 
ing property.  He  seems  to  differ  from  Chairman  Roemer  as  to  whether 
a  railroad  should  be  entitled  to  a  return  on  rights  of  way  granted  by 
federal  or  state  governments,  Mr.  Roemer  being  of  the  opinion  that  a 
return  should  not  be  allowed,  while  Mr.  Erickson  favors  a  return  to 
make  up  for  the  first  lean  years  of  operation.  The  Commission  never 
allows  a  return  on  franchise  values  except  to  the  extent  that  a  railroad 
or  utility  actually  paid  for  the  franchise. 

Formal  case  No.  32,  known  as  the  Buell  case,  shows  clearly  the  rate- 
making  theory  of  the  Commission,  and  is  probably  the  most  important 
case  which  the  Commission  has  decided.  The  bases  there  laid  down  were 
followed  by  the  Federal  Post  Office  authorities  when  they  asked  for 
information  from  the  railway  companies  as  to  revenue  and  cost  of  oper- 
ation of  all  kinds  of  passenger  train  business,  including  particularly 
the  mail  business. 

V. 
STOCK  AND  BOND  LAW. 

Chapter  576  of  the  Laws  of  1907  provides  for  the  approval  of  the 
Commission  before  any  public  service  corporation  can  issue  stock,  stock 
certificates,  bonds,  notes,  or  other  evidences  of  indebtedness,  payable 
not  less  than  one  year  from  date.  This  statute  gave  the  Commission 
no  discretion  as  to  approval  and  no  power  to  impose  conditions,  nor 
did  it  specify  the  purpose  for  which  the  money  was  to  be  used.  I 
understand  that  these  matters  were  all  remedied  and  the  powers  of 
the  Commission  materially  enlarged  by  an  act  of  the  legislature  of 
1911,  adopted  just  before  I  reached  Madison. 

Foreign  corporations  owning  railroads  and  utilities  in  Wisconsin 
consider  themselves  bound  by  the  law.  The  general  law  of  Wisconsin 


REPORT   ON   RAILROAD   AND   PUBLIC .  SERVICE   COMMISSIONS.  35 

has  for  some  time  provided  for  a  fee  to  be  paid  on  an  increase  of  capital 
stock,  but  has  never  contained  a  provision  for  a  fee  on  an  issue  of 
bonds.  Another  act  of  the  legislature  of  1911  accordingly  provides 
that  upon  an  approval  of  a  bond  issue  by  the  Railway  Commission,  the 
corporation  affected  must  pay  a  fee  of  $1.00  on  $1,000.00;  if  this  statute 
had  been  in  effect  in  1910,  the  fees  derived  from  it  would  have  paid 
the  entire  expenses  of  the  Commission.  The  imposition  of  such  a  fee 
is  fair,  for  the  reason  that  the  approval  of  the  governmental  author- 
ities to  a  bond  issue  generally  results  in  a  raise  of  a  point  or  two  in  the 
sale  price  of  the  bonds.  It  will  be  well  to  bear  this  point  in  mind,  in 
framing  the  new  California  statute. 

VI. 

INDETERMINATE  PERMITS. 

Chapter  578  of  the  Laws  of  1907  provides  for  indetermediate  permits 
for  street  railways,  and  sections  74  and  86  of  the  Public  Utilities  Act 
of  1907  provide  a  similar  permit  for  heat,  light,  water,  and  power 
companies  in  municipalities.  An  indeterminate  permit  is  a  permit 
running  without  limit  as  to  time  and  having  attached  thereto  the  fol- 
lowing two  conditions: 

1.  If  any  public  service  corporation  within  a  municipality  has  com- 
plied with  the  requirements  of  the  statute  as  to  the  surrender  of  exist- 
ing permits  or  franchises  and  has  thereupon  secured  by  operation  of 
the  statute  an  indeterminate  permit,  no  license,  permit  or  franchise 
shall  be  granted  to  any  similar  concern  within  the  same  municipality 
unless  the   Commission  finds  that   public   convenience   and  necessity 
require  such  second  public  utility. 

2.  The  corporation,  by  acquiring  such  indeterminate  permit,  consents 
to  the  purchase  of  its  plant  by  the  municipality  in  which  it  operates, 
at  a  price  to  be  fixed  by  the  Railroad  Commission,  with  the  right  of 
appeal  to  the  courts  on  the  question  of  the  price. 

Chairman  Roemer  considers  these  provisions  concerning  indeter- 
minate permits  as  the  very  foundation  stone  of  the  regulation  of  street 
railroads  and  other  public  utilities  in  "Wisconsin.  The  period  within 
which  the  corporations  might  bring  themselves  within  the  terms  of  the 
statute  was  extended  to  January  1,  1911,  but  only  25  per  cent  of  the 
public  service  corporations  availed  themselves  of  the  privilege.  The  leg- 
islature of  1911  finally  took  the  bull  by  the  horns  and  provided  that 
all  permits,  franchises  and  licenses  theretofore  granted  by  any  public 
authority  were  by  that  act  amended  so  as  to  be  indeterminate  permits, 
with  the  characteristics  hereinbefore  mentioned.  Chairman  Roemer  is 
strongly  in  favor  of  this  kind  of  permit  and  states  that  the  only  reason 
why  other  states  have  not  followed  the  lead  of  Wisconsin  in  this  matter 


36  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

is  that  they  do  not  understand  this  kind  of  permit.    He  points  out  the 
following  advantages  accruing  to  the  corporations : 

1.  They  receive  what  is  in  effect  a  perpetual  franchise. 

2.  They  are  relieved  of  the  necessity  of  providing  an  amortization 
fund. 

3.  They  are  assured  a  fair  price  in  case  their  plant  is  purchased  by 
the  municipality  within  which  they  operate. 

Such  permit,  on  the  other  hand,  is  of  great  benefit  to  the  state  because 
it  brings  the  public  service  corporations  directly  under  the  control  of 
the  Commission,  avoids  cut-throat  competition  and  gives  municipalities 
the  power  at  any  time  to  purchase  the  public  utilities  within  their  limits, 
at  a  fair  price. 

Chairman  Roemer  was  of  the  opinion,  however,  that  it  would  not  be 
wise  to  pass  such  a  statute  in  California  until  the  situation  resulting 
from  divided  control  of  public  utilities  between  state  and  local  authori- 
ties has  been  clarified. 

VII. 
USE    OF    FACILITIES    BY    OTHER    UTILITIES. 

Section  794w-4  of  the  Public  Utilities  Law  provides  that  all  public 
utilities  having  conduits,  subways,  poles  or  other  equipment  on  or  under 
any  street  or  highway  shall  for  a  reasonable  compensation  permit  the 
use  of  the  same  by  any  other  public  utility  whenever  public  convenience 
requires  such  use.  Chairman  Roemer  considers  this  to  be  an  important 
provision  and  upon  his  suggestion  the  legislature  of  1911  added  to  the 
section  provisions  for  physical  connections  between  telephone  systems 
in  such  cases  and  under  such  conditions  as  might  be  prescribed  by  the 
Commission.  Wisconsin  and  Oklahoma  have  shown  clearly  the  public 
benefit  derived  from  physical  connections  between  telephone  systems. 

VIII. 

PHYSICAL    VALUATION. 

1.  Railroads. 

The  valuation  of  the  railroad  properties  of  Wisconsin  was  begun  in 
1903  and  completed  several  years  ago.  In  1909  a  new  valuation  of  the 
land  of  all  the  railroads  was  made  by  the  Commission  and  it  was  found 
that  the  value  had  gone  up  considerably.  The  railroads  now  render 
each  year  statements  of  additions  and  deductions  similar  to  those  ren- 
dered in  Minnesota.  The  Commission  usually  accepts  the  statements  of 
the  larger  railroads,  which  have  men  regularly  employed  in  the  work, 
but  finds  it  necessary  to  check  up  the  work  of  the  smaller  railroads. 

2.  Utilities. 

There  are  about  one  thousand  utilities  in  Wisconsin.  Of  these  the 
Commission  has  valued  some  fifty,  being  those  involved  in  complaints 
pending  before  the  Commission.  No  valuation  of  utilities  had  been  made 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  37 

except  in  case  of  complaint  as  to  rates.  The  Commission  never  decides  a 
case  involving  the  rates  of  a  public  utility  without  having  first  ascer- 
tained the  value  of  its  property.  The  work  of  valuation  of  utilities  is 
divided  among  the  branches  of  the  engineering  department.  A  hearing 
is  always  held  by  the  Commission  after  the  engineering  force  has  com- 
pleted its  report,  and  the  Commission  then  makes  its  findings. 

The  statute  contains  no  provision  similar  to  that  of  Washington  for  a 
court  review  of  findings  as  to  value.  As  no  valuations  of  utilities 
have  been  made  except  in  cases  pending  before  the  Commission,  the 
Washington  provisions  would  have  served  no  purpose  in  Wisconsin  in 
so  far  as  the  valuations  have  hitherto  been  made. 

IX. 

DEPRECIATION    ACCOUNT. 

Section  1797m-15  of  the  Public  Utilities  Act  provides  that  each  utility 
must  on  the  order  of  the  Commission  carry  an  adequate  depreciation 
account  out  of  operating  revenues,  in  an  amount  prescribed  by  the  Com- 
mission, for  the  purpose  of  keeping  the  property  in  efficient  condition. 
The  money  in  this  fund  may  be  expended  for  new  construction,  exten- 
sions or  additions  and  for  no  other  purpose.  The  Commission  has  not 
prescribed  a  general  percentage  but  does  prescribe  a  percentage  in  such 
rate  cases  as  it  decides.  The  Commission  directs  its  statistical  depart- 
ment to  ascertain  the  average  life  of  the  plant  and  of  the  different 
component  elements  thereof  and  then  establishes  a  percentage  of  depre- 
ciation so  that  if  the  money  is  put  out  at  interest  for  the  given  number 
of  years  the  value  of  the  plant  will  have  been  replaced.  The  money  so 
set  aside  may  be  used  for  other  purposes,  such  as  new  construction,  but 
when  the  money  derived  from  the  sale  of  new  construction  bonds  is 
realized,  the  amount  taken  from  the  depreciation  account  is  returned 
with  interest.  Commissioner  Erickson  considers  this  matter  as  one  of 
considerable  importance.  The  ordinary  corporation  is  more  interested 
in  declaring  large  dividends  than  in  setting  aside  funds  for  the  replace- 
ment of  its  property. 

X. 
PUBLIC    CONVENIENCE    AND    NECESSITY    LAW. 

Chapter  454  of  the  Laws  of  1907  provides  that  no  railroad  corporation 
shall  begin  the  construction  of  any  proposed  line  of  railroad  or  make 
any  extension  to  an  existing  line  without  having  first  secured  from  the 
Commission  a  certificate  that  public  convenience  and  necessity  require 
such  construction.  Before  the  railroad  is  operated,  it  must  be  inspected 
and  approved  by  the  Commission.  This  matter  has  been  worked  out  in 
greater  detail  in  the  New  York  statute.  It  is  one  of  very  considerable 
importance,  because  it  gives  to  the  Commission  the  power  to  prevent 
cut-throat  competition  and  wasteful  duplication  of  plants  on  which  the 
public  must  pay  interest  in  the  form  of  rates. 


38  REPORT   ON  RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS. 

XI. 

RATE    CHANGES. 

Up  to  1911,  the  Wisconsin  statute  provided  that  no  changes  should  be 
made  in  the  rates  of  a  railroad  or  public  utility  except  upon  notice  to 
the  Commission.  The  time  in  case  of  a  utility  was  ten  days  and  in  case 
of  a  railroad  thirty  days.  Unless  objection  was  made,  the  rate  went  into 
effect  without  further  action  on  the  part  of  the  Commission.  In  other 
words,  the  approval  of  the  Commission  was  not  a  condition  precedent 
to  the  effectiveness  of  the  rate.  The  result  was  that  there  was  very 
little  work  for  the  railroad  rate  department  and  this  work  was  all  done 
by  one  rate  man  and  one  assistant.  The  legislature  of  1911,  however, 
amended  the  existing  statute  so  as  to  provide  that  no  changes  might  go 
into  effect  without  the  precedent  approval  of  the  Commission.  The 
commissioners  are  somewhat  doubtful  as  to  the  wisdom  of  this  change. 
They  think  that  the  railroads  may  possibly  use  this  provision  as  a 
pretext  for  refusing  to  establish  the  rates  desired  by  shippers..  The 
"Wisconsin  Commission  seems  to  have  done  very  little  work  in  fixing 
railroad  rates. 

XII. 

MUNICIPAL   COUNCILS. 

I  have  already  stated  that  utilities  owned  by  municipalities  come 
within  the  jurisdiction  of  the  Commission  to  the  same  extent  as  other 
utilities. 

Under  section  1797  w-87,  of  the  Public  Utilities  Law,  municipal  coun- 
cils have  power  in  the  first  instance  to  determine  the  quality  and 
character  of  each  kind  of  product  or  service  and  the  terms  of  occupation 
of  streets,  but  not  the  power  to  fix  the  rates.  Even  as  to  the  rights 
exercised  by  the  councils,  the  Commission  has  the  right  to  review  their 
action  and  to  set  aside  their  ordinances.  The  Commission  recently 
declared  null  and  void  a  city  ordinance  directing  the  completion  by  a 
public  utility  within  sixty  days  of  work  which  could  not  reasonably  be 
performed  in  less  than  nine  months. 

It  should  be  noted  that  the  only  powers  of  regulation  or  control 
exercised  by  municipal  councils  are  those  which  are  particularly  men- 
tioned in  1797m-87  and  that  as  to  these  powers,  the  Commission  has  the 
right  of  review. 

XIII. 

GAS,   ELECTRIC  AND  TELEPHONE   INSPECTION. 

This  work  is  carried  on  by  a  branch  of  the  engineering  department 
under  the  immediate  charge  of  Mr.  Cadby.  For  the  purposes  of  elec- 
trical inspection,  the  state  is  divided  into  four  districts  with  one  man 
in  charge  of  each  district.  One  man  supervises  all  the  gas  plants  in  the 
state.  Another  is  engaged  in  telephone  inspection.  Two  men  are  in 


REPORT   ON   RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  39 

the  office,  in  addition  to  Mr.  Cadby,  making  a  total  of  nine  men  engaged 
in  this  work. 

The  work  is  done  as  follows : 

1.  Gas  and  Electric  Service. 

Sections  1797 w-22  to  25  of  the  Public  Utilities  Law  provide  that  the 
Commission  shall  prescribe  the  standard  commercial  units  of  product  or 
service,  standards  for  the  measurement  of  quality,  pressure  and  voltage, 
and  rules  and  regulations,  and  shall  examine  and  test  appliances  used 
for  measuring  the  product  and  service  of  public  utilities.  Under  these 
sections,  the  Commission,  after  numerous  conferences  with  the  inter- 
ested corporations,  prescribed  its  order,  U-21 — in  re  standards  for  gas 
and  electric  service  in  the  State  of  Wisconsin,  2  W.  R.  C.  E.  632-662. 
These  rules,  established  on  July  24,  1908,  have  remained  unchanged. 
Acting  under  these  sections  of  the  statute  and  this  order,  the  Commis- 
sion keeps  inspectors  constantly  in  the  field  making  inspections  of  plants 
and  meters  and  service,  examining  complaints  and  advising  proprietors 
of  plants  how  to  remedy  defects  in  service.  The  inspectors,  while  trav- 
eling, also  fill  out  reports  as  to  the  service  on  the  railroads  over  which 
they  are  traveling.  These  reports  are  turned  in  monthly  with  their 
expense  accounts  and  are  then  sent  to  the  railroads  affected.  The 
inspectors  are  all  University  of  "Wisconsin  graduates  and  are  paid 
between  $90.00  and  $125.00  per  month. 

2.  Telephone  Service. 

The  department  is  carrying  on  a  detailed  investigation  into  telephone 
service  within  the  state.  Men  are  sent  to  the  different  cities  of  the  state 
with  instructions  to  make  one  hundred  and  twelve  telephone  calls,  of 
which  twelve  are  at  pay  stations.  These  men  note  the  time  which  expires 
before  central  answers,  the  time  thereafter  before  the  party  at  the 
other  end  answers,  and  the  frequency  of  "busy"  and  "don't  answer" 
replies.  The  results  of  these  trials  are  then  platted  and  sent  to  the 
telephone  companies  affected.  Very  marked  improvements  in  the  service 
are  said  to  have  resulted  from  these  tests. 

XIV. 
RATE    DEPARTMENT. 

Mr.  Hogan  has  charge  of  the  filing  of  schedules  of  rates  of  charges 
in  so  far  as  railway,  express  and  telephone  companies  are  concerned. 
The  Commission  has  not  yet  worked  out  a  form  for  the  filing  of  the 
schedules  of  public  utilities,  and  few,  if  any,  such  schedules  are  on  file. 

Up  to  the  present,  the  chief  work  of  Mr.  Hogan  and  his  assistant  has 
been  to  prepare  information  for  the  Commission  in  rate  cases.  The 
Commission's  usual  practice  is  to  take  the  testimony  of  both  sides  and 
then  to  send  it  over  to  the  rate  expert,  who  reads  it  and  makes  a  report 


40  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COM  Ml  —  loXS. 

thereon.  The  Commission  usually  follows  the  report,  so  that  some  of  the 
railway  companies  have  adopted  the  practice  of  introducing  very  little 
evidence  at  all,  for  the  reason  that  they  know  that  the  Commission  will 
investigate  the  subject  anyway.  Mr.  Hogan  has  had  some  difficulty  in 
securing  schedules  of  rates  of  charges  affecting  Wisconsin  business 
issued  by  foreign  companies  not  doing  business  in  Wisconsin  and  con- 
curred in  by  the  Wisconsin  lines.  The  statute  requires  only  the  filing 
of  tariffs  issued  by  railroads  which  are  subject  to  the  act.  The  Wis- 
consin carriers  have  to  ask  for  an  extra  copy  of  such  tariffs  for  the  use 
of  the  Commission.  Other  states,  such  as  Oklahoma,  secure  complete 
files  of  all  tariffs  affecting  the  state,  including  those  issued  by  foreign 
companies.  They  force  the  local  companies  to  secure  the  tariffs  from 
the  foreign  companies.  Mr.  Hogan  files  separately  the  tariffs  affecting 
state  business  and  those  showing  nothing  but  interstate  rates.  The 
tariffs  are  indexed  according  to  their  nature,  i.  e.,  commodity,  switching, 
distance,  lumber,  logs,  etc.  A  card  index  system  is  used. 

XV. 

DEPARTMENT   OF   STATISTICS   AND   ACCOUNTS. 

Section  1797 w-8  of  the  Public  Utilities  Law  provides  that  every  public 
utility  shall  keep  and  render  to  the  Commission,  in  the  manner  pre- 
scribed by  the  Commission,  uniform  accounts  of  all  business  transacted. 
Section  1797m-9  provides  that  the  Commission  shall  prescribe  the  form 
of  all  books,  accounts,  papers,  etc.  Section  1797m-13  provides  for  an 
annual  balance  sheet  to  show  the  information  desired  by  the  Commis- 
sion. Similar  provisions  are  contained  in  the  railroad  act. 

The  Commission,  acting  under  these  sections,  has  worked  out  a  set  of 
account  forms  and  instructions  for  every  public  utility,  and  in  some 
cases  has  worked  out  different  forms  of  reports  for  the  same  kind  of 
utility,  depending  upon  the  size  and  the  extent  thereof.  These  forms 
have  been  worked  out  with  great  thoroughness  and  care.  A  complete 
set  was  sent  to  the  California  Commission  upon  my  request,  and  should 
be  carefully  consulted  as  soon  as  the  Commission  undertakes  this  same 
work. 

The  Wisconsin  forms  provide  for  an  arrangement  of  operating 
expense  accounts  in  order  of  time,  so  as  to  show  the  cost  as  to  each 
step  in  the  process.  The  department  is  also  engaged  in  a  thorough  class- 
ification of  all  expenses  of  utilities  and  other  facts  connected  therewith 
by  percentages,  so  as  to  arrive  at  unit  information.  Mr.  Gruhl  showed 
me  several  such  tables  worked  out  in  great  detail  for  some  twelve  <.M< 
companies.  His  department  has  also  worked  out  tables  of  depreciation 
for  each  item  of  utility  plants  and  also  a  composite  curve  showing  depre- 
ciation for  each  utility.  The  Commission  orders  this  percentage  of 
operating  revenues  to  be  set  aside  for  depreciation  as  prescribed  by  the 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  41 

Public  Utilities  Act.  This  department  has  also  done  very  thorough 
work  in  the  matter  of  investigating  passenger  rates  of  the  Milwaukee 
street  car  line  system.  This  case  will  soon  be  decided  and  will  be  one 
of  the  most  important  utility  decisions  of  the  Commission. 

This  department  also  carries  on  a  large  amount  of  general  work  of 
investigation  with  reference  to  the  conduct  of  the  business 'of  the  public 
utilities. 

Mr.  Schneider  is  in  charge  of  the  railroad  and  express  statistics  and 
accounting.  The  Wisconsin  Commission  has  adopted  the  form  of 
accounts  prescribed  by  the  Interstate  Commerce  Commission,  but  itself 
prints  the  forms  which  are  sent  out  to  the  railway  companies.  The 
same  is  true  of  express  companies. 

XVI. 

EXPRESS    INVESTIGATION. 

Commissioner  Erickson  told  me  that  the  Commission  has  been  inves- 
tigating express  rates  for  some  eighteen  months.  It  has  secured  from 
the  express  companies  general  data  showing  amount  of  business  both 
incoming  and  outgoing  from  each  station,  with  the  terminal  expendi- 
tures chargeable  thereto.  •  Several  hearings  have  already  been  held. 
The  Commission  is  also  going  into  the  question  of  the  reasonableness 
of  the  rates  of  the  railway  companies  in  connection  with  this  business. 
Mr.  Erickson  was  of  the  opinion  that  Auditor  Peabody  's  estimates  in  the 
Kindel  case  before  the  Interstate  Commerce  Commission  are  defective, 
because  in  his  original  segregation  of  freight  from  passenger  expenses 
he  loaded  the  passenger  expenses  too  heavily.  The  Wisconsin  Commis- 
sion has  made  a  very  thorough  examination  into  this  question  of  segre- 
gation of  passenger  from  freight  operating  expenses.  (See  the  Buell 
case,  No.  32.) 

XVII. 
WRITING    OF    OPINIONS. 

Commissioner  Erickson  believes  strongly  in  referring  in  detail  to  the 
facts  in  the  opinions  of  the  Commission.  He  believes  that  the  habit  of 
doing  so  will  induce  the  commissioners  to  make  more  thorough  investi- 
gations and  also  that  the  railroads  and  utilities  will  be  less  likely  to 
appeal.  This  has  been  the  experience  of  Wisconsin.  The  case  of  City 
of  Beloit  against  the  Beloit  Gas,  Light  and  Electric  Railway  Company, 
decided  while  I  was  in  Madison,  covers  over  thirty  printed  pages. 
Mr.  Erickson  also  showed  me  an  opinion  which  he  had  written  in  the 
matter  of  the  City  of  Janesville  water  case,  containing  in  detail  by 
tables  figures  showing  operation,  revenue,  classes  of  consumers,  etc., 
all  prepared  by  the  statistical  and  accounting  department.  Mr.  Erick- 
son realizes  that  some  prominent  commissioners  prefer  to  write  merely 


42  REPORT  ON   RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS. 

the  decision  without  going  into  the  reasons,  but  believes  strongly  that 
the  Wisconsin  system  is  the  better  one. 

XVIII. 

COST    BASIS. 

Commissioner  Erickson  is  probably  the  leading  exponent  in  the 
United  States  of  the  theory  that  rates  should  be  based  on  the  cost  of 
the  service,  including  interest  on  the  value  of  the  plant,  lie  has  pre- 
pared detailed  tables  showing  how  the  cost  of  the  service  of  each  unit 
is  secured.  . 

XIX.    ' 
RELATION  BETWEEN  STATE  UNIVERSITY  AND  COMMISSION. 

One  of  the  most  significant  features  of  the  work  of  the  Railroad  Com- 
mission is  the  close  relation  existing  between  the  Commission  and  the 
State  University.  Professor  Gilmore,  of  the  law  department,  rendered 
assistance  in  the  drafting  of  the  original  Railroad  Commission  Act. 
Professor  Commons,  of  the  Department  of  Economics,  drew  the  public 
utilities  act  of  1907.  This  work  was  done  without  compensation  and 
on  the  invitation  of  the  legislative  committees.  As  I  have  already 
stated.  Professors  Pence,  Burgess,  Mack,  and  others  devote  part  of 
their  time  to  their  work  in  the  University  and  part  to  the  work  of  the 
Railroad  Commission.  A  large  number  of  the  employees  of  the  Com- 
mission are  graduates  of  the  State  University.  Considerable  work  of 
an  experimental  nature  has  been  done  by  the  students  of  the  University. 
A  number  of  the  students  of  the  University  become  interested  in  the 
work  of  the  Commission  by  reason  of  the  lectures  that  are  given  in  the 
University  by  men  such  as  the  professors  whom  I  have  mentioned,  and 
they  are  then  upon  graduation  selected  as  employees  of  the  Commission. 
This  relation  is  one  which  has  grown  up  naturally  and  has  not  resulted 
from  any  forwardness  on  the  part  of  the  University. 

This  relation  is  of  very  great  assistance  both  to  the  University  and 
to  the  Commission.  It  helps  the  University,  because  quite  a  number 
of  her  instructors  are  enabled  to  do  practical  work  and  to  bring  to  their 
classes  the  point  of  view  of  a  practical  man.  The  University  is  also 
very  materially  aided  because  the  people  of  the  state  see  that  it  is  help- 
ing them  to  solve  some  of  their  most  important  practical  problems,  and 
for  that  reason  give  her  generous  support.  The  arrangement  is  also 
of  very  material  assistance  to  the  Commission.  It  gives  to  the  Com- 
mission unprejudiced  men  of  scholarliness  and  thoroughness  and  high 
ideals  of  public  service.  I  am  convinced  that  the  Wisconsin  Commission 
could  not  have  attained  its  present  high  stage  of  efficiency  if  it  had 
not  been  for  its  close  association  with  the  State  University. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  43 


NEW  YORK. 

SECOND  DISTRICT. 

I. 

INTRODUCTION. 

The  Public  Service  Commissions  both  of  the  First  and  Second  Dis- 
tricts were  created  by  statute  of  1907.  They  took  the  place  of  the 
Board  of  Railroad  Commissioners,  the  Commission  of  Gas  and  Elec- 
tricity, the  Inspectors  of  Gas  Meters  and  the  Board  of  Rapid  Transit 
Commissioners.  The  First  District  includes  the  counties  of  New  York, 
Kings,  Queens  and  Richmond;  the  Second  Districts,  all  other  counties 
of  the  state. 

The  Commission  of  the  First  District  has  jurisdiction  over  railroads 
and  street  railroads  lying  exclusively  within  the  district ;  street  railroads 
lying  partly  within  the  district  in  so  far  as  affects  transportation  of 
persons  or  property  within  the  district;  the  portions  of  other  railroads 
lying  within  the  district,  as  to  physical  features;  common  carriers 
other  than  railroads,  as  to  operations  within  the  district;  and  gas  and 
electric  companies  within  the  district.  In  addition  to  these  powers,  the 
Commission  of  the  First  District  is  the  successor  of  the  Board  of  Rapid 
Transit  Commissioners  in  the  matter  of  rapid  transit  within  the  City 
of  New  York  and  the  management  and  control  of  the  subways.  The 
headquarters  of  this  commission  are  in  New  York  City. 

The  Commission  of  the  Second  District  has  all  jurisdiction  not  specif- 
ically conferred  upon  that  of  the  First  District  and  in  addition  thereto 
the  legislature  of  1910  conferred  upon  it  jurisdiction  over  all  the 
telephone  and  telegraph  companies  of  the  state,  whether  situated  within 
the  First  or  within  the  Second  District.  The  headquarters  of  this 
commission  are  at  Albany. 

The  Public  Utilities  Act  contains  provisions  for  control  over  the  issue 
of  stocks  and  bonds  and  also  of  extensions  and  new  construction  (cer- 
tificates of  public  convenience  and  necessity). 

The  present  Public  Service  Commission  Act  was  very  strongly  advo- 
cated by  Governor  Hughes  and  was  one  of  his  pet  measures. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.     The  Commission. 

The  commissioners  are  Frank  W.  Stevens,  the  chairman,  an  able 
lawyer,  who  handles  a  large  part  of  the  applications  for  approval  of 
stock  and  bond  issues;  Martin  S.  Decker,  formerly  assistant  secretary 

4 — RC 


44  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

of  the  Interstate  Commerce  Commission,  who  handles  a  portion  of  the 
applications  and  is  particularly  concerned  with  traffic  matters;  James 
E.  Sague,  who  was  for  many  years  a  railroad  operating  man  and  who  is 
particularly  interested  in  the  engineering  and  physical  inspection  work 
of  the  Commission ;  John  B.  Olmstead,  a  lawyer,  who  concerns  himself 
with  grade  crossings  and  other  matters,  and  Winfield  A.  Huppuch, 
recently  appointed  by  Governor  Dix.  The  Commission  holds  hearings 
nearly  every  day  and  is  practically  in  continuous  session.  The  chair- 
man seems  to  be  a  particularly  hard  working  man.  The  commissioners 
are  appointed  by  the  governor  for  the  term  of  five  years,  at  a  salary  of 
$15,000.00  per  year.  The  New  York  salaries  are  considerably  higher 
than  those  paid  in  any  other  state. 

2.     Employees. 

The  work  of  the  Commission  is  divided  into  the  following  divisions : 

a.  Administrative. 

b.  Light,  heat  and  power. 

c.  Statistics. 

d.  Tariffs. 

c.  Engineering  and  inspection. 
/.  Telegraphs  and  telephones. 
g.  Traffic  inspection. 

The  secretary  receives  a  salary  of  $6,000.00  per  year.  The  present 
employees  in  the  administrative  department  are  as  follows : 

John  S.  Kennedy,  secretary;  one  assistant  secretary;  one  secretary 
for  each  commissioner;  and  twenty-three  clerks  and  seventeen  stenog- 
raphers. 

The  Commission  has  a  counsel,  Ledyard  P.  Hale,  who  receives  a  salary 
of  $10,000.00  per  year. 

The  division  of  light,  heat  and  power  has  a  chief  of  division,  Henry 
C.  Hazzard,  who  receives  a  salary  of  $4,000.00 ;  one  engineer  at  a  salary 
of  $5,000.00;  six  persons  employed  in  the  electrical  department;  and 
thirteen  in  the  gas  department.  The  division  of  statistics  consists 
of  a  chief  statistician,  who  receives  a  salary  of  $5,000.00  per  year,  and 
fifteen  employees.  The  division  of  tariffs  consists  of  a  chief  of  division, 
at  a  salary  of  $4,000.00,  and  seven  employees.  The  division  of  engineer- 
ing and  inspection  consists  of  a  chief  of  division,  at  a  salary  of  $4,000.00 
per  year,  an  inspector  and  assistant  inspectors  of  electric  railways,  an 
engineer  and  inspectors  of  grade  crossings,  a  supervisor  of  equipment 
and  two  assistant  supervisors,  a  boiler  inspector,  a  mechanical  engineer, 
four  steam  railway  inspectors  and  several  clerks  and  stenographers. 
The  division  of  telegraphs  and  telephones  has  a  chief,  at  a  salary  of 
$4,000.00,  and  an  engineer  and  seven  employees  in  the  Albany  office 
and  an  engineer  and  three  employees  in  the  New  York  City  office.  The 
division  of  traffic  inspection  consists  of  one  inspector,  whose  station  is 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  45 

at  Buffalo.  Altogether,  the  commissioners  and  the  employees  of  the 
commission  number  one  hundred  and  thirty.  The  budget  for  the  year 
1911-12,  is  $388,000,  with  an  additional  $350,000  as  the  state's  share  of 
the  cost  of  elimination  of  grade  crossings. 

o.     Office  System. 

All  communications  both  to  and  from  the  Commission  are  handled 
by  the  secretary.  Each  morning  he  goes  through  the  mail  and  assigns 
the  correspondence  to  the  respective  divisions.  The  files  in  the  general 
office  are  arranged  in  three  main  groups  (1)  formal  matters;  (2)  in- 
formal matters;  (3)  general  correspondence.  Both  formal  and  infor- 
mal matters  are  numbered.  The  filing  clerk  keeps  in  her  desk  a  book 
for  informal  matters  and  assigns  to  each  matter,  as  it  comes  in,  a  num- 
ber. A  decimal  filing  system  has  been  carefully  worked  out  for  the 
general  correspondence  files.  The  office  has  one  large  general  index. 
Formal  matters  are  indexed  by  name  of  complainant  (on  a  white  card), 
name  of  the  respondent  (salmon),  name  of  the  locality  (blue),  and  the 
names  of  all  persons  who  are  connected  in  any  way  with  the  case, 
including  everybody  who  writes  in  about  it  and  all  lawyers  who  appear, 
except  the  regularly  retained  corporation  lawyers.  In  this  way  an 
index  is  given  to  every  possible  clue.  Informal  matters  are  indexed  in 
the  same  way  on  the  same  colored  cards.  However,  these  matters  have 
two  letters  "cc"  i.  e.}  "correspondence  complaints,"  in  the  upper  right 
hand  corner.  All  applications  also  appear  in  this  same  index  on  green 
cards.  General  correspondence  matters  are  indexed  by  names  of  the 
persons.  Separate  indexes  are  also  kept  for  the  subject  matter  of 
all  complaints  both  formal  and  informal.  I  consider  the  filing  system 
of  this  office  to  be  the  best  which  I  observed  in  any  of  the  commissions, 
and  secured  for  the  information  of  the  California  Commission,  a  copy  of 
the  decimal  system  key. 

III. 

DIVISION    OF     HEAT,     LIGHT    AND     POWER. 

This  division  has  charge  of  the  inspection  of  all  gas  and  electric 
plants  within  the  district  and  the  testing  of  gas  meters.  Its  chief  is 
Henry  C.  Hazzard.  The  Commission  has  prescribed  standards  of  purity 
and  of  illuminating  power  of  gas,  and  has  four  men  in  the  field  con- 
stantly inspecting  gas  plants  to  see  whether  these  standards  are  being 
complied  with.  Examinations  are  also  made  of  the  safety  of  construc- 
tion and  operation  of  high  tension  power  lines.  About  80  per  cent  of 
the  gas  furnished  is  used  for  heating.  Consequently,  in  Mr.  Hazzard 's 
judgment,  a  calorific  test  is  better  than  a  lighting  (candle  power)  test. 
Several  conferences  have  been  held  between  the  Commission  and  the 
gas  companies  for  the  purpose  of  having  the  companies  adopt  a  calorific 
test.  The  matter  is  now  in  process  of  adjustment.  Every  gas  meter 


46  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 

is  inspected  before  being  installed;  this  work  necessitates  the  employ- 
ment by  the  Commission  of  seven  gas  meter  inspectors.  Electric  meters 
can  not  be  so  inspected  before  installation,  for  the  reason  that  because 
of  their  delicacy  they  vary  materially  between  the  time  of  inspection 
and  the  time  of  installation.  After  the  installation  of  the  gas  meters, 
they  are  not  inspected  by  the  Commission  except  upon  complaint  of  a 
user  of  gas.  The  corporation,  however,  is  directed  to  keep  meter  test- 
ing apparatus,  which  is  inspected  from  time  to  time  by  the  Commis- 
sion's inspectors.  In  Wisconsin,  the  Commission  does  not  in  the  first 
instance  test  every  gas  meter,  but  forces  the  company  to  do  so  within 
thirty  days  after  installation,  and  once  every  two  years  thereafter. 
The  New  York  Commission  also  forces  the  electric  companies  to  pur- 
chase machines  for  testing  electric  meters  and  to  make  tests  at  regular 
intervals. 

IV. 

DIVISION     OF    STATISTICS. 

This  division  is  in  charge  of  Mr.  Wishart,  who  was  formerly  with 
the  Interstate  Commerce  Commission.  The  chief  work  of  the  depart- 
ment is  to  prescribe  forms  of  accounts  and  reports,  to  analyze  the 
reports,  and  to  furnish  statistical  data  when  required  by  the  Commis- 
sion in  cases  of  stock  and  bond  issues  and  other  cases.  With  reference 
to  steam  railroads,  the  department  uses  the  Interstate  Commerce  Com- 
mission's forms  as  models,  but  prints  its  own  blank  forms,  with  paper 
covers  for  convenience  in  filing.  As  to  express  companies,  forms  pre- 
pared by  the  Interstate  Commerce  Commission  are  used.  As  to  gas  and 
electric  companies  and  street  railroads,  the  department  has  prepared 
its  own  forms  for  three  classes  of  companies  in  each  case,  being  those 
which  are  large,  medium  and  small.  The  department  is  now  preparing 
forms  for  telephone  and  telegraph  companies.  Copies  of  all  these 
forms  have  been  sent  to  the  California  Commission  at  my  request. 

The  department  has  two  traveling  auditors  to  examine  the  books  of 
public  utility  corporations,  to  make  reports  on  special  cases,  and  to  assist 
the  smaller  companies  in  keeping  their  books. 

V. 

DIVISION  OF  TARIFFS. 

This  division  is  in  charge  of  Mr.  Griggs,  who  has  devised  the  most 
thorough  tariff  filing  index  system  which  I  observed  on  my  tour.  The 
Commission  has  issued  its  Circular  No.  55,  being  regulations  prescrib- 
ing the  form  and  governing  the  construction  and  filing  of  freight  tariffs 
and  classifications  and  passenger  fare  schedules  of  railroad  companies. 
It  has  also  prepared  a  form  of  schedule  for  heat,  light  and  power  com- 
panies, but  this  form  has  not  as  yet  been  adopted.  Mr.  Griggs  is  now 


REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS.  47 

working  on  a  form  of  schedule  for  telephone  and  telegraph  companies. 
None  of  the  public  utilities  have  as  yet  filed  any  tariffs.  This  division 
issues  a  weekly  tariff  bulletin  showing  all  changes  in  transportation 
rates  and  fares  for  the  preceding  week. 

The  largest  part  of  the  work  of  this  division  consists  in  keeping  up 
the  very  thorough  card  index  system  which  Mr.  Griggs  has  devised. 
He  has  one  index  to  tariffs  by  railroads,  showing  passenger,  class 
freight  and  other  tariffs,  except  commodity  tariffs,  and  a  separate 
index  for  all  the  commodity  tariffs.  The  commodity  index  runs  alpha- 
betically from  a  to  z,  each  commodity  being  separately  indexed.  When- 
ever a  tariff  schedule  comes  into  the  office  and  is  ready  for  filing,  every 
commodity  shown  therein  is  passed  on  to  the  index  cards.  For  instance, 
under  the  head  of  ' '  apples ' '  will  be  found  a  reference  to  every  schedule 
which  shows  a  rate  on  apples.  In  this  way,  it  is  possible  to  tell  at  a 
moment's  notice  every  rate  on  apples  in  effect  on  any  railroad  within 
the  State  of  New  York  for  the  last  four  years.  In  some  cases,  one  single 
schedule  necessitates  several  thousand  notations  on  the  index  cards. 

VI. 

DIVISION  OF  TRAFFIC. 

This  division  consists  of  one  inspector  with  headquarters  in  Buffalo, 
where  the  steam  railroad  traffic  is  more  congested  than  in  any  other 
city  in  the  state.  It  is  the  duty  of  this  inspector  to  study  how  to  relieve 
this  congestion  and  to  expedite  traffic. 

VII. 

DIVISION   OF   ENGINEERING   AND    INSPECTION. 

The  steam  railroad  inspectors  go  over  all  of  the  steam  railroads  of 
the  state  each  year  and  inspect  the  same  as  to  their  physical  features, 
such  as  the  adequacy  of  stations  and  yard  facilities  and  the  condition  of 
the  track.  One  supervisor  and  two  assistants  do  similar  work  with  refer- 
ence to  railroad  equipment.  The  inspector  of  electric  railroads  has 
charge  of  the  physical  features  of  the  electric  railroads  of  the  second 
district  and  examines  into  all  complaints  affecting  them.  The  division 
also  has  in  its  employment  a  locomotive  boiler  inspector  and  an  engineer 
and  an  inspector  of  grade  crossings. 

The  railroads  furnish  to  the  Commission,  at  short  intervals,  reports 
as  to  each  passenger  train  delay.  The  engineering  and  inspection 
division  thereupon  analyzes  the  returns  and  suggests  improvements. 

VIII. 
DIVISION   OF   TELEGRAPHS   AND   TELEPHONES. 

The  statute  of  1910  provides  that  the  Commission  of  the  Second  Dis- 
trict shall  have  jurisdiction  over  all  telegraph  companies  and  over  all 


48  REPORT   OF  RAILROAD   AND   PUBLIC   SERVICE    COMMISSIONS. 

telephone  companies  having  a  property  value  of  $10,000.00  or  over. 
Out  of  eleven  hundred  telephone  companies  in  the  state,  only  one  hun- 
dred and  thirty-five  report  that  they  have  the  required  amount  of  prop- 
erty. The  Commission  is  having  considerable  trouble  with  telephone 
companies  by  reason  of  discriminations  in  charges  arising  from  existing 
contracts.  The  Commission  has  called  for  a  statement  from  the  tele- 
phone companies  as  to  every  discrimination  of  this  kind,  and  may  take 
action  to  order  the  cancellation  of  such  contracts.  No  investigation  has 
been  made  into  the  value  of  the  plants  of  these  companies  and  no  rates 
have  been  fixed  for  any  of  them. 

IX. 

STOCKS    AND    BONDS. 

No  issue  of  stocks,  bonds  or  other  securities  payable  in  more  than 
twelve  months,  of  any  of  the  companies  subject  to  the  Public  Utilities 
Act  is  valid  without  a  certificate  of  authority  from  the  Commission.  A 
very  large  part  of  the  Commission's  work  consists  in  hearings  on  these 
applications.  Under  the  rules  of  procedure  prescribed  by  the  Commis- 
sion, a  petition  is  filed  setting  forth  the  amount  and  details  of  the 
proposed  issue;  the  purposes  for  which  the  proceeds  are  to  be  used; 
a  general  description  of  property,  facilities  or  service  to  be  acquired  or 
obligations  to  be  refunded;  the -financial  condition  of  the  applicant;  the 
cost  of  construction  of  the  proposed  improvements;  and  the  contract 
for  the  sale  of  the  stocks  or  bonds,  or  an  affidavit  as  to  the  amount  prob- 
ably to  be  realized.  The  Commission,  generally  acting  through  Chair- 
man Stevens  or  Commissioner  Decker,  makes  a  thorough  examination 
into  the  application.  If  there  is  any  question  about  the  matter,  the 
accountants  and  sometimes  the  engineer  of  the  Commission  are  sent  out 
to  examine  the  plant  and  to  report.  The  Texas  law  as  to  stock  and 
bond  issues  of  railroads  provides  that  no  registration  of  bonds  shall  be 
authorized  without  a  precedent  valuation  of  the  plant.  The  New  York 
Commission  generally  does  not  seem  to  require  a  valuation  as  a  condi- 
tion precedent  to  the  issuance  of  the  certificate. 

The  order  of  the  Commission  generally  prescribes  the  purpose  for 
which  the  money  is  to  be  used,  directs  the  applicant  to  report  under  oath 
the  sales  of  obligations  issued  and  the  terms  and  conditions  and  amounts 
realized  and  to  make  a  verified  report  at  least  once  every  six  months 
showing  in  detail  the  use  and  application  by  the  applicant  of  the 
moneys  so  realized.  No  form  for  applications  nor  for  reports  has  been 
prepared. 

The  Commission  lays  very  particular  stress  on  this  part  of  its  work. 
One  very  important  question  which  has  arisen  is  as  to  whether  or  not 
the  Commission  has  the  power,  under  the  statute,  to  impose  conditions 
on  the  grant  of  its  permission.  Recently  the  Commission  made  an  order 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS.  49 

permitting  an  electric  railway  company,  which  was  very  much  over- 
capitalized, to  issue  $500,000.00  worth  of  bonds  to  make  improvements, 
on  condition  that  the  company  strike  off  $100,000.00  of  its  capital 
stock.  The  Commission's  order  in  this  matter  is  now  in  the  courts. 
It  is  important  to  have  the  statute  provide  that  the  Commission  shall 
have  the  power  to  impose  conditions,  otherwise  it  is  powerless  to  force 
the  writing  off  of  any  watered  stock  or  to  force  compliance  with  any 
other  requirement  which,  in  the  judgment  of  the  Commission,  may  be 
necessary  to  protect  the  company  and  the  public. 

X. 

CERTIFICATE  OF  PUBLIC  CONVENIENCE  AND   NECESSITY. 

The  railroad  law  and  the  public  service  commission  law  both  provide 
that  the  corporations  therein  specified  shall  not  begin  the  construction 
of  a  new  plant  or  an  extension  of  an  existing  one  or  exercise  any  new 
franchise  or  right  without  having  first  secured  from  the  Commission 
a  certificate  that  public  convenience  and  necessity  require  the  construc- 
tion or  the  extension  or  the  exercise  of  the  franchise  or  right. 

The  applicant  must  file  a  petition  showing  all  the  material  facts 
connected  with  the  enterprise,  including  the  manner  in  which  it  is 
proposed  to  finance  the  construction  or  extension.  The  Commission 
then  gives  notice  to  each  municipality  affected  and  to  every  other  public 
service  corporation  of  the  same  kind  likely  to  be  concerned  and  to  every 
person  who  has  corresponded  in  the  matter,  and  directs  the  applicant 
to  publish  notice  in  a  paper  designated  by  the  Commission.  The  chief 
question,  at  the  hearing,  is  generally  as  to  wyhether  or  not  the  public 
convenience  or  necessity  requires  the  construction  of  a  new  plant  or  the 
extension  of  an  existing  one.  The  hearings  are  often  contested  between 
the  existing  company  and  the  new  one  which  is  seeking  to  enter  the 
field.  Where  the  application  is  submitted  by  a  proposed  competitor  of 
an  existing  utility  and  the  utility  already  in  the  field  is  giving  satis- 
factory service,  the  Commission  generally  denies  the  application.  If 
the  existing  company  is  giving  poor  service,  the  Commission  often  holds 
the  application  of  the  new  company  as  a  club  over  the  head  of  the 
existing  company  in  order  to  force  better  service.  The  commissioners 
told  me  that  they  considered  this  provision  an  extremely  important 
one.  Cut-throat  competition  between  such  companies  usually  results  in 
deterioration  of  the  equipment  and  the  service,  and  when  the  inevitable 
consolidation  takes  place,  the  public  must  pay  interest  on  both  invest- 
ments. 

The  Commission  recently  refused  permission  to  a  proposed  new 
railroad,  the  Buffalo,  Rochester  and  Eastern  to  build  from  Buffalo 
easterly  towards  Boston,  a  proposition  involving  a  contemplated  outlay 
of  more  than  one  hundred  million  dollars.  The  reason  for  the  refusal 


50  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS. 

was  that  the  traffic  in  the  territory  affected  was  already  being  ade- 
quately handled  by  the  existing  railroads  and  that  there  was  no  reason 
for  the  investment  of  so  much  additional  capital  on  which  the  public 
would  have  to  pay  interest.  A  rehearing  was  granted  in  the  case,  but 
a  decision  affirming  the  former  decision  was  being  prepared  when  I 
was  with  the  Commission,  although  a  large  number  of  legislators  had 
signed  a  petition  to  the  Commission  "to  decide  the  case  promptly  and 
in  favor  of  the  applicant"  and  though  there  was  considerable  public 
agitation  in  favor  of  the  project. 

XI. 

PHYSICAL  VALUATION. 

This  Commission  has  done  practically  no  work  in  ascertaining  the 
value  of  the  properties  of  the  corporations  subject  to  its  jurisdiction. 
The  only  work  which  has  been  done  has  consisted  in  the  valuation  of  a 
few  of  the  smaller  utilities  in  complaints  before  the  Commission  con- 
cerning their  rates.  In  the  New  York  telephone  case,  recently  decided, 
concerning  ten  cent  tolls  between  New  York  City  and  adjoining  cities, 
the  Commission  reduced  the  toll  to  five  cents.  The  Commission  struck 
out  an  item  of  thirty  million  dollars  for  special  franchise  values,  and 
then  took  the  telephone  company 's  own  figures  as  to  value.  One  valua- 
tion was  made  during  the  last  four  years  in  the  matter  of  a  gas  rate.  One 
of  the  commissioners  told  me  that  there  was  little  occasion  for  investi- 
gating railroad  rates  for  the  reason  that  they  were  stable  and  that  the 
railroads  were  entitled,  if  anything,  to  a  higher  rate  than  those  in 
effect. 

Chairman  Stevens,  speaking  for  himself,  is  not  impressed  by  the 
physical  valuation  theory  of  some  of  the  western  states.  He  thinks  such 
valuations  unsatisfactory  for  three  reasons : 

1.  Because  the  principles  upon  which  they  are  based  have  not  as 
yet  been  clearly  defined  by  the  courts. 

2.  Because  the  ascertainment  of  the  valuation  is  largely  guess  work. 

3.  Because  he  does  not  know  what  to  do  with  the  valuation  after  he 
gets  it. 

As  bearing  on  the  second  point,  he  referred  to  a  Buffalo  gas  or 
electric  case,  in  which  he  had  been  taking  testimony  for  some  two  weeks 
and  in  which  the  experts  varied  two  hundred  per  cent  in  their  valua- 
tions. He  is  of  the  opinion  that  this  entire  question  of  physical  valua- 
tion is  largely  guess  work,  particularly  with  reference  to  depreciation. 
In  his  judgment,  the  original  cost  of  the  plant  (not  the  cost  of  repro- 
duction) is  a  material  element,  but  he  points  out  that  in  New  York 
State  it  is  absolutely  impossible  to  ascertain  the  original  cost  of  con- 
struction of  the  railroad  properties.  He  stated  also  that  the  application 
of  the  cost  of  reproduction  theory  would  very  materially  raise  the  rail- 
road rates  in  the  State  of  New  York. 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  51 

XII. 

RATE  FIXING. 

As  I  have  already  indicated,  the  New  York  Commission  has  done 
practically  no  work  in  the  way  of  rate  fixing.  In  1907  the  legislature 
passed  a  two  cent  maximum  fare  passenger  law,  but  Governor  Hughes 
vetoed  the  bill  on  the  ground  that  there  had  been  no  investigation  suffi- 
cient to  justify  the  reduction.  The  Public  Service  Commission  did  not 
at  that  time  have  the  power  to  investigate  rates  on  its  own  initiative. 
No  investigation  has  ever  been  made.  Mr.  Stevens'  view  of  the  matter 
is  that  the  service  should  first  be  perfected,  and  that  when  this  has  been 
done,  the  Commission  can  take  up  the  question  as  to  whether  or  not  the 
company  is  still  receiving  excessive  compensation.  The  Commission  has 
never  made  any  investigation  of  express  rates. 

XIII 

RELATION     WITH     NEWSPAPERS. 

The  Commission  is  very  particular  to  see  to  it  that  adequate  publicity 
is  given  to  its  proceedings.  Each  day  the  assistant  secretary  prepares 
a  statement  of  the  matters  which  have  come  before  the  Commission 
during  the  day,  including  decisions  and  new  applications  for  the 
approval  of  stock  or  bond  issues  and  for  permission  to  construct  new 
plants  or  extensions  of  existing  plants.  These  statements  are  secured 
each  day  by  the  newspaper  representatives  and  are  published  in  a  large 
number  of  the  papers  in  the  state.  While  I  was  traveling  in  other 
states,  both  in  the  east  and  south,  I  read,  from  time  to  time,  in  the  local 
papers,  items  which  had  been  telegraphed  over  the  wires  of  the  Asso- 
ciated Press  from  the  Commission  of  the  Second  District  of  New  York, 
showing  the  effectiveness  of  the  newspaper  work  of  the  Commission. 

XIV. 

RELATION    BETWEEN    COMMISSION    AND    CORPORATIONS. 

This  Commission,  like  that  of  Wisconsin,  seems  to  be  on  friendly 
terms  with  the  corporations  subject  to  its  jurisdiction.  I  was  told  that 
there  are  at  present  only  three  or  four  cases  in  the  courts  arising  out 
of  orders  of  the  Commission,  these  being  cases  raising  questions  con- 
cerning the  jurisdiction  of  the  Commission  in  certain  matters,  such  as 
the  power  to  impose  conditions  upon  the  issue  of  stocks  and  bonds. 

This  condition  of  affairs,  existing  as  it  does  with  reference  to  the 
work  of  two  of  the  most  thorough  and  capable  of  the  Commissions  of 
the  country,  wrould  seem  to  justify  the  conclusion  that  where  the  work 
of  Commissions  is  done  with  considerable  care  and  thoroughness,  the 
probability  of  appeal  from  their  orders  is  slight.  The  result  has  been 


52  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

that  the  entire  legal  work  of  the  Commission  is  handled  by  its  counsel, 
personally,  without  any  assistants.  It  is  interesting  in  this  connection 
to  note  that  the  legal  department  of  the  Commission  of  the  First  District 
in  New  York  consists  of  a  Counsel  and  some  four  of  five  assistants,  who 
are  kept  constantly  busy  with  the  Commission's  litigation.  It  is  only 
fair,  however,  to  say  that  a  large  portion  of  the  litigation  of  the  Com- 
mission of  the  First  District  is  probably  due  to  a  mean  spirit  on  the  part 
of  some  of  the  corporations,  and  to  the  fact  that  former  watering  of 
stock  and  excessive  issues  of  bonds  have  placed  the  corporations  now 
in  such  a  position  that  they  can  not  meet  the  interest  on  their  bonds  and 
declare  dividends,  and  consequently  are  not  in  a  mood  to  comply  with 
any  order  requiring  an  additional  outlay  of  money. 

XV. 

ELIMINATION  OF  GRADE  CROSSINGS. 

The  Railroad  Commission  Law  of  1907  contains  elaborate  provisions 
concerning  the  power  of  the  Commission  with  reference  to  supervision 
of  crossings,  and  particularly  the  abolition  of  grade  crossings.  In  the 
years  1907  to  1910  the  State  of  New  York  paid  as  its  share  in  the  elim- 
ination of  grade  crossings,  the  sum  of  $1,270,831.49.  The  final  deter- 
mination by  the  Commission  of  a  large  number  of  grade  crossing  cases 
has  been  held  up  because  of  the  failure  of  the  legislature  of  1909  to 
make  any  appropriation  for  the  further  elimination  of  such  crossings. 
The  legislature  of  1911,  however,  appropriated  $350,000  for  this  work. 
In  the  three  years  from  1907  to  1910,  inclusive,  226  persons  were  killed 
and  400  injured  at  highway  crossings  in  New  York  State  outside  the 
limits  of  New  York  City.  The  Commission  has  recommended  that  a 
statute  be  passed  requiring  the  railway  companies  to  remove,  at  their 
own  expense,  each  year  one  grade  crossing  for  every  three  hundred 
miles  of  railroad.  The  problem  is  becoming  more  serious  every  day. 

XVI. 

DISCOUNTS    AND     EXPENSES. 

The  Commission  has  taken  the  position  that  discounts  and  expenses 
incurred  in  connection  with  the  original  sale  of  securities  are  not  to  be 
regarded  as  capital  on  which  interest  must  be  paid  indefinitely,  but 
rather  that  they  are  amounts  which  must  be  apportioned  annually  over 
the  period  of  life  of  the  security.  In  other  words,  these  sums  should 
be  paid  out  of  income  and  not  regarded  as  capital  account.  This  mat- 
ter is  of  importance,  in  view  of  the  fact  that  the  Washington  Commis- 
sion, in  making  its  valuations,  permitted  the  railroads  to  capitalize 
these  items. 


REPORT   ON  RAILROAD  AND   PUBLIC   SERVICE   COMMISSIONS.  53 

XVII. 

AMORTIZATION    FUND. 

The  Commission  insists  that  the  companies  shall  set  aside  each  year 
out  of  their  income  an  amortization  fund.  While  it  would  naturally 
be  expected  that  the  corporations  would  be  glad  to  do  so,  the  fact  is  that 
many  of  their  managers,  desiring  to  declare  as  large  a  dividend  as 
possible,  have  been  extremely  dilatory  about  setting  aside  this  fund. 
The  Commission  has  prescribed  no  percentage  of  depreciation  to  be  set 
aside,  but  has  left  the  responsibility  for  the  present  with  the  corpora- 
tions themselves. 


54  REPORT  ON  RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS. 

MASSACHUSETTS. 

A. 

RAILROAD   COMMISSION. 

I. 

INTRODUCTION. 

The  Board  of  Railroad  Commissioners  of  Massachusetts  was  appar- 
ently created  by  act  of  1864,  although  its  active  work  seems  to  date  from 
the  act  of  1869.  The  Board  has  limited  jurisdiction  over  all  steam, 
electric,  and  street  railroads,  express  companies  and  "steamship  com- 
panies serving  as  common  carriers  throughout  the  year  between  two  or 
more  ports"  of  the  commonwealth.  Jurisdiction  over  gas  and  electric 
light  companies  is  exercised  by  the  Gas  and  Electric  Light  Commis- 
sioners. Jurisdiction  over  telephone  and  telegraph  companies  is  exer- 
cised by  the  Board  of  Highway  Commissioners. 

The  General  Court  (legislature)  of  Massachusetts  meets  annually  and 
each  year  passes  quite  a  number  of  amendments  to  the  railroad  commis- 
sion act,  and  resolves  (resolutions)  calling  upon  the  Board  to  investigate 
special  problems  and  to  report  thereon. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.  The  Commission. 

The  commissioners  are  Walter  P.  Hall,  Chairman ;  Geo.  W.  Bishop 
and  Clinton  White.  Mr.  Hall  is  a  lawyer.  All  the  chairmen  from 
Chas.  Francis  Adams  down  have  been  lawyers.  Mr.  Bishop  was  for- 
merly road  master  of  the  Fitchburg  railroad  and  is  the  practical  rail- 
road man  of  the  Commission.  Mr.  White  has  served  for  ten  years,  is  a 
banker  and  financier  and  handles  the  stock  and  bond  applications.  The 
commissioners  give  practically  all  their  time  to  the  duties  of  their  office. 
They  spend  considerable  time  in  traveling  both  in  the  United  States 
and  abroad  for  the  purpose  of  familiarizing  themselves  with  traffic  con- 
ditions and  with  the  most  approved  methods  of  railroad  operation. 

The  railroad  commissioners  are  appointed  by  the  governor  and  serve 
for  three  years.  By  amendment  of  1906,  the  salary  of  the  chairman 
was  raised  to  $6,000.00  and  that  of  the  other  two  commissioners  to 
$5,000.00 

2.  Employees. 

The  employees  of  the  Board  consist  of  a  secretary,  an  assistant  sec- 
retary, an  auditor,  an  assistant  auditor,  a  consulting  engineer,  ten 
inspectors  and  four  stenographers.  The  secretary,  Chas.  E.  Mann,  is 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  55 

appointed  by  the  governor,  at  a  salary  of  $3,000.00  per  year  and  has 
served  since  1893.  The  only  other  secretary  whom  the  Commission 
has  had  served  from  1869  to  1893.  The  function  of  the  accountant 
and  his  assistant  is  to  edit,  check  over,  analyze  and  digest  the  reports 
submitted  each  year  by  the  railroad  companies.  The  consulting  bridge 
engineer,  Professor  George  F.  Swain  of  the  Harvard  Scientific  School, 
receives  a  salary  of  $3,000.00.  The  inspectors  are  paid  $2,000.00 

The  total  expense  for  salaries  for  the  year  1910  was  $42,600.00.  The 
sums  of  money  appropriated  annually  by  the  General  Court  for  salaries 
and  expenses  of  the  board,  its  clerks  and  employees,  are  apportioned 
by  the  tax  commissioner  among  the  corporations  subject  to  the  juris- 
diction of  board,  in  proportion  to  gross  earnings,  and  are  collected  in 
the  same  manner  as  taxes  upon  such  corporations,  so  that  the  entire 
expense  of  maintaining  the  board  is  ultimately  paid  by  the  corporations 
which  are  subject  to  its  jurisdiction. 

3.     Office  System. 

The  office  system  is  not  elaborate,  for  the  reason  that  the  Board 
does  not  handle  a  very  large  amount  of  business.  All  formal  matters 
are  numbered  and  a  brief  history  thereof  written  in  an  index  book.  I 
glanced  through  this  book  and  noted  that  practically  all  matters  noted 
therein  are  petitions  by  the  railway  companies  for  approval  of  locations, 
approval  of  stock  and  bond  issues,  approval  of  right  to  exercise  fran- 
chises, etc.  On  a  number  of  these  pages  I  noticed  only  a  single  case 
of  a  complaint  by  the  third  party  asking  a  hearing.  Matters  which 
are  referred  to  the  Board  by  the  General  Court  for  investigation  are 
also  noted  as  formal  matters.  An  index  is  kept  of  all  correspondence 
matters.  A  book  containing  an  entry  of  every  letter  received  and  sent 
out  in  each  such  matter  is  also  kept.  The  secretary  keeps  a  card 
index  of  all  applications  by  railroads.  He  keeps  letterpress  books  for 
his  correspondence  and  also  one  for  "Orders  of  Notice,"  these  being 
notices  to  corporations  that  matters  have  been  set  for  certain  dates. 
The  blank  forms  of  these  orders  are  printed  in  copying  ink  so  that  the 
entire  notice  appears  in  the  letterpress  book. 

The  minutes  are  kept  in  a  loose  leaf  book  with  typewritten  inserts. 
On  the  theory  that  the  Board  is  in  session  all  the  time,  no  mention  is 
made  of  adjournments  to  any  particular  time.  The  minute  books  show 
proceedings  on  an  average  of  about  every  other  day. 

III. 

RATE    FIXING. 

Up  to  1911,  the  Board  had,  with  reference  to  rates,  recommendatory 
powers  only.  For  that  reason,  the  Board  was  referred  to  by  a  committee 
of  the  National  Association  of  Railroad  Commissioners  as  a  weak  board. 
It  is  evident  that  this  charge  rankles.  The  commissioners  explained 


56  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 

that  although  they  did  not  have  the  power  to  fix  a  rate,  they  accom- 
plished practically  the  same  purpose  through  their  powers  of  recom- 
mendation, for  the  reason  that  if  their  recommendations  were  not 
complied  with,  the  General  Court  would  pass  a  statute  in  the  matter, 
lowering  the  rate.  I  have  been  informed  within  the  last  few  days, 
however,  that  the  General  Court  before  adjourning  this  spring  finally 
gave  to  the  Commission  the  power  to  fix  rates. 

In  response  to  a  resolve  of  the  General  Court,  the  Board  has  made 
a  thorough  investigation  into  the  commutation  rates  within  fifteen  miles 
of  Boston  and  has  secured  the  adoption  by  the  railroads  of  twelve  day 
tickets  and  has  also  induced  them  to  smooth  out  all  inequalities  in  rates 
in  concentric  spheres  of  territory  radiating  out  from  Boston.  Under 
a  resolve  of  1911,  the  Board  must  now  investigate  commutation  rates 
further  out  than  fifteen  miles.  Commissioner  White  told  me  that 
there  is  a  considerable  agitation  for  the  reduction  of  commutation 
fares  further  out,  particularly  on  electric  roads,  and  that  the  promise 
of  a  reduction  in  such  fares  is  frequently  the  principal  plank  in  the 
platform  of  a  candidate  for  the  General  Court. 

IV. 

FACILITIES,    EQUIPMENT,    SAFETY    DEVICES. 

AVith  reference  to  repairs,  additions  to  rolling  stock,  additions  to  or 
alterations  in  stations  or  waiting  rooms,  and  manner  of  operation, 
the  powers  of  the  Board  are  recommendatory  only.  Certain  statutes, 
however,  have  given  to  the  Board  the  power  to  compel  the  installation 
of  interlocking  plants,  signal  plants  at  crossings  and  safety  devices.  In 
general,  the  Board  has  mandatory  power  as  to  matters  affecting  the 
safety  of  passengers  and  merely  recommendatory  power  in  the  general 
field  of  service,  safety  and  equipment. 

V. 

POWERS  OF   BOARD   AS  TO   CHARTERS,   FINANCES   AND   CONSTRUCTION. 

The  most  important  powers  of  the  Board  are  those  which  are  exer- 
cised in  the  granting  of  certificates  as  preliminary  to  the  incorporation 
of  railroad  companies  and  their  construction  and  financial  operations. 

1.     Incorporation. 

After  the  incorporators  of  a  proposed  railroad  company  have  signed 
articles  of  intended  association  and  have  advertised  the  same,  they  must 
secure  from  the  Board  a  certificate  that  public  convenience  and  neces- 
sity require  the  construction  of  a  railroad  as  proposed  in  the  articles 
of  agreement.  The  Board  has  power  to  refuse  the  issue  of  such  a  cer- 
tificate. The  Board  in  its  order  sets  a  date  for  the  hearing  of  the  matter 
and  usually  directs  publication  in  at  least  one  newspaper  in  each  city 
or  town  affected,  and  also  directs  a  copy  of  the  publication  to  be 


REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS.  57 

served  on  the  mayor  of  each  such  city  or  town.  Railroads  which  might 
be  affected  are  also  notified.  The  general  policy  of  the  Board  is  to  grant 
such  certificates  wherever  they  affect  new  territory  but  to  refuse  them 
where  the  territory  is  already  adequately  served.  In  case  the  existing 
service  is  inadequate,  and  the  existing  company  is  slow  to  improve  it, 
Commissioners  Hall  and  "White  differ  as  to  the  policy  to  be  pursued. 
Chairman  Hall  would  grant  the  application  on  the  ground  that 
competition  is  a  good  thing.  Commissioner  "White  would  hold  the 
matter  in  abeyance,  using  it  as  a  club  over  the  head  of  the  existing 
corporation  to  compel  improved  service,  and  ultimately  granting  it  only 
if  the  existing  corporation  does  not  come  up  to  scratch.  Chairman 
Hall  fears  that  this  policy  will  ultimately  result  in  the  refusal  of  any 
new  corporation  to  apply,  and  consequently  a  tendency  on  the  part  of 
the  existing  corporation  not  to  keep  up  its  service. 

The  Board  last  year  refused  several  applications  for  new  railroads, 
among  them  the  applicaton  of  the  Boston,  Lowell  and  Lawrence  Elec- 
tric Eailroad  Company,  in  which  case  Chairman  Hall  dissented.  The 
Board  last  year  granted  certificates  to  four  railroads,  refused  them  to 
two  (Hall  dissenting)  and  postponed  one  matter  (Hall  dissenting). 

If  the  Board  issues  the  certificate  of  public  convenience  and  necessity, 
the  proposed  corporation  must  then  agree  as  to  its  route  with  the  board 
of  aldermen  of  all  the  cities  and  towns  through  which  the  railroad  is 
to  run,  must  pay  into  its  treasury  ten  per  cent  of  the  par  value  of  the 
stock  subscribed,  and  must  then  secure  from  the  Board  a  certificate  of 
compliance  with  the  provisions  preliminary  to  incorporation.  Then, 
and  only  then,  can  the  incorporators  secure  from  the  secretary  of  the 
commonwealth  their  certificate  of  incorporation. 

As  far  as  I  was  able  to  ascertain,  Massachusetts  is  the  .only  state 
which  makes  the  issuance  of  a  certificate  of  public  convenience  a  condi- 
tion precedent  to  the  issuance  of  articles  of  incorporation.  In  Wisconsin 
and  New  York,  the  proposed  company  can  incorporate  and  secure  its 
articles,  subject  to  the  possibility  that  the  Railroad  Commission  may 
thereafter  refuse  permission  to  build  the  railroad  for  which  they  are 
incorporated.  The  Massachusetts  plan  is  more  logical  in  that  it  goes 
to  the  root  of  the  matter  and  prevents  the  initial  incorporation  of  such 
company,  unless  the  Board  of  Railroad  Commissioners  decides  that 
public  convenience  and  necessity  require  the  construction  of  a  railroad 
along  the  route  specified  in  the  articles  of  incorporation. 

2.     Construction. 

After  the  certificate  of  incorporation  has  issued  and  the  railroad 
has  been  constructed,  it  can  not  be  operated  until  the  Board  has  issued 
its  certificate  that  all  laws  regarding  its  construction  have  been  com- 
plied with  and  that  it  appears  to  be  in  a  safe  condition  for  operation. 
If  the  railroad  thereafter  wishes  to  extend  its  line  or  to  add  a  new  piece 


58  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 

of  track,  it  must  secure  from  tHe  Board  an  approval  as  to  location. 
With  reference  to  locations,  the  Board  has  power  to  refuse  the  certificate 
only  on  the  ground  of  menace  to  public  safety.  The  right  of  the 
railroad  to  build  along  a  certain  route  has  already  been  settled  by  the 
issuance  of  the  certificate  of  public  convenience  and  necessity.  The 
question  arising  under  an  application  for  the  approval  of  a  location  is 
simply  the  determination  of  a  specific  location  in  that  general  route. 

If  the  railroad  thereafter  wishes  to  lease  the  franchise  of  another 
railroad  corporation,  or  to  consolidate  with  such  corporation,  or  to  enter 
into  a  contract  with  it  under  which  the  corporation  shall  perform  all 
the  transportation  upon  the  road  of  the  other,  it  must  first  secure  a 
certificate  of  authorization  from  the  Board  of  Railroad  Commissioners. 

3.     Finances. 

If  a  railroad  wishes  to  issue  stocks,  bonds,  notes  or  other  evidences 
of  indebtedness,  payable  more  than  twelve  months  from  the  date  of  issue, 
it  must  first  secure  a  certificate  from  the  Board  of  Railroad  Commission- 
ers. No  form  of  petition  has  been  prescribed  by  the  Board.  The  Board 
generally  directs  notice  to  be  published  in  one  or  more  newspapers. 
Cases  of  contest  in  matters  of  this  kind  are  extremely  rare.  There 
is  generally  an  appearance  made  by  the  attorney  and  the  treasurer 
or  auditor  of  the  applicant.  The  Board  does  not  seem  to  make  the 
careful  examination  into  the  value  of  the  applicant's  property  which  is 
made  in  New  York  and  Texas,  but*  seems  to  rely  largely  upon  the 
knowledge  of  finance  possessed  by  Commissioner  White. 

The  statute  does  not  specify  the  purpose  for  which  such  issues  can 
be  made  and  in  this  respect  differs  from  the  statutes  of  New  York  and 
Wisconsin.  Commissioner  White  told  me  that  the  present  Board  has 
never  authorized  an  issue  for  any  purpose  other  than  the  purchase  of 
property  except  under  one  statute  which  authorized  the  issue  for 
working  capital.  Mr.  White  thinks  it  wiser  to  have  the  statute  give 
the  board  general  powers  in  this  respect  instead  of  tying  the  hands  of 
the  commissioners  by  detailed  statutory  provisions. 

I  had  some  little  conversation  with  Commissioners  Hall  and  White 
with  reference  to  the  policy  of  the  commissions  in  New  York  in  forcing 
an  applicant  at  times  to  write  off  a  designated  amount  of  capital  stock 
as  a  condition  precedent  to  the  approval  of  a  new  issue  of  stocks  or  bonds 
so  as  gradually  to  squeeze  out  the  water.  Chairman  Hall  is  strongly 
of  the  opinion  that  the  Commission  should  not  go  into  these  matters, 
but  should  start  with  a  clean  slate  and  should  consider  only  whether 
the  amount  of  the  issue  applied  for  is  too  large  for  the  purpose  specified 
and  whether  the  purpose  specified  is  legitimate.  He  referred  to  the 
converse  case  in  which  the  corporate  plant  is  worth  more  than  its 
stocks  and  bonds  and  asked  why  it  would  not  be  permissible  in  such  a 
case,  if  the  theory  referred  to  is  correct,  to  permit  a  new  issue  of 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  59 

stocks  or  bonds  without  putting  in  any  new  money  into  the  plant.  He 
does  not  see  how  the  New  York  Commissions  can  consistently  refuse  to 
grant  such  permission  in  the  latter  case.  I  found  no  crystallization  of 
opinion  among  the  commissions  on  this  point. 

These  provisions  with  reference  to  incorporation,  construction,  and 
finances  give  to  the  Board  immense  powers,  and  the  larger  portion  of  its 
work  is  performed  under  them.  The  stock  and  bond  law  has  been  in 
effect  since  1875,  and  the  public  convenience  and  necessity  law  since 
1882.  Wisconsin,  New  York  and  other  states  which  have  recently 
adopted  similar  provisons,  all  apparently  took  them  from  Massachusetts. 

VI. 

GRADE    CROSSINGS. 

The  matter  of  alteration  or  abolition  of  grade  crossings  is  an  extremely 
important  one  in  Massachusetts.  In  1910,  the  Commission  approved 
plans  for  the  abolition  of  crossings  at  grade  in  eight  towns  and  also 
approved  two  agreements  for  alterations  in  grade  crossings.  In  cases 
of  abolition,  the  railway  companies  pay  65  per  cent  of  the  expense,  and 
the  state  and  the  city  or  town  35  per  cent.  $34,000,000  has  already  been 
expended  in  Massachusetts  by  the  railroad  and  public  authorities  in  the 
abolition  of  grade  crossings.  In  1910,  the  commonwealth  voted  an  addi- 
tional $500,000  for  this  purpose.  Both  Chairman  Hall  and  Commis- 
sioner White  urged  strongly  that  California  take  steps  in  this  matter  at 
once,  before  the  expense  becomes  enormous,  as  is  the  case  in  all  the  east- 
ern states. 

VII. 

COURT  PROCEDURE. 

The  board  has  had  almost  no  cases  in  court.  This  is  partly  due  to  the 
fact  that  a  large  portion  of  the  work  of  the  Board  has  been  recommend- 
atory and  that  none  of  it  has  involved  the  fixing  of  a  rate.  The  remedy 
adopted,  whenever  any  was  used,  has  been  certiorari.  The  board  has 
been  reversed  only  four  times  in  its  history.  Two  of  these  cases  date 
back  to  the  days  of  Charles  Francis  Adams. 

VIII. 

PREPARING   ANNUAL    REPORT. 

Secretary  Mann  showed  me  his  method  of  preparing  his  annual  report. 
During  the  year,  the  usual  main  heads  in  a  report  are  cut  out  and  all 
orders  and  other  matters  pertaining  thereto  are  pasted  under  these 
heads  in  chronological  order,  ready  for  printing.  The  index  heads  are 
also  cut  out  and  pasted  on  cards,  and  new  cards  are  prepared  by  one  of 
the  clerks  at  odd  times  as  new  headings  become  necessary.  All  orders, 
in  so  far  as  possible,  are  held  off  after  December  15th,  and  the  Chair- 
man 's  report  must  be  in  by  that  day.  Proof  has  been  read  in  the  mean 
5 — RC 


60  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

time,  from  time  to  time,  by  the  secretary,  with  the  result  that  the  signed 
report  is  on  the  desk  of  the  legislators  by  the  first  Wednesday  in  January. 
The  statistical  reports  are  printed  in  a  separate  volume.  By  planning 
the  work  ahead  during  the  year,  it  is  comparatively  easy  to  have  the 
report  prepared  in  time. 

IX. 

LIBRARY. 

Secretary  Mann  has  spent  considerable  time  in  securing  a  library, 
particularly  in  so  far  as  the  railroads  of  Massachusetts  are  concerned. 
He  has  collected  a  large  number  of  pamphlets  dealing  with  the  early 
history  of  these  railroads,  and  practically  all  the  books  that  have  been 
published  affecting  in  any  way  the  railroads  of  the  commonwealth.  He 
showed  me  some  extremely  interesting  pamphlets  going  back  to  the  very 
first  railroad  construction  in  Massachusetts,  and  others  dealing  with  the 
early  history  and  construction  of  the  Hoosac  Tunnel.  He  has  also 
secured  from  the  railroads  and  from  booksellers  and  private  libraries 
almost  complete  sets  of  the  stockholders'  reports  of  the  railroad  com- 
panies— a  matter  of  considerable  importance  to  an  effective  railroad 
commission.  He  has  also  prepared  a  historical  card  index  of  all  the 
railroads  of  Massachusetts,  showing  in  detail  every  step  in  their  his- 
tory, beginning  with  the  incorporation  and  continuing  through  every 
organization,  reorganization  and  consolidation,  and  every  statute  and 
order  of  the  Board  referring  in  any  way  to  these  matters  and  to  the 
issuing  of  stocks  and  bonds.  I  shall  go  into  this  latter  matter  a  little 
more  fully  in  connection  with  the  work  of  the  Public  Service  Commis- 
sion of  the  First  District  of  New  York.  These  two  commissions  seem  to 
be  the  only  ones  which  have  realized  fully  the  immense  value  of  having 
in  the  office  of  the  state  board  detailed  and  accurate  information  con- 
cerning the  entire  history  of  the  railroad  companies  of  the  state. 

• 

X. 

INSPECTORS. 

Up  to  1911,  the  legislature  provided  for  seven  inspectors.  The  state 
was  divided  into  six  districts,  with  one  inspector  in  charge  of  each  dis- 
trict. The  duty  of  each  inspector  is  to  look  into  the  service,  equipment, 
and  facilities  of  the  steam  and  street  railroads  within  his  district  and 
to  investigate  complaints  affecting  these  matters.  The  seventh  inspector 
is  a  locomotive  inspector  and  spends  his  time  riding  on  locomotives. 
Commissioner  White  is  particularly  proud  of  these  inspectors.  All  of 
them  are  practical  railroad  men.  Each  Monday  they  report  to  Com- 
missioner Bishop  at  a  general  conference.  There  is  sufficient  diversity 
in  their  qualifications  so  that  one  or  the  other  is  qualified  to  handle 
practically  any  matter  which  may  come  up.  however  technical  it  TIIMV 
1)0.  involving  a  question  of  service,  facilities,  or  equipment.  The  legis- 
lature of  1911  increased  the  number  of  the  inspectors  from  seven  to  ten. 


REPORT   ON  RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  61 

B. 
GAS  AND  ELECTRIC  COMMISSIONERS. 

I. 

INTRODUCTION. 

Since  1885,  jurisdiction  over  all  the  gas  and  electric  light  companies 
of  the  state  has  been  exercised  by  the  Board  of  Gas  and  Electric  Light 
Commissioners. 

The  board  has  the  following  general  powers : 

1.  To  supervise  all  companies  manufacturing  and  selling  gas  or  elec- 
tricity for  light  or  heat. 

2.  To  authorize  a  gas  light  company  to  engage  in  the  business  of  fur- 
nishing electricity  for  heat  and  power. 

3.  To  sit  as  court  of  appeal  on  decisions  of  boards  of  aldermen  or 
selectmen  on  the  petition  of  a  second  company  to  lay  gas  pipes  in  the 
streets. 

4.  To  exercise  similar  power  as  to  electric  light  companies. 

5.  To  prescribe  forms  of  accounts. 

6.  To  compel  the  rendition  of  annual  returns. 

7.  To  compel  a  company  to  supply  gas  or  electricity  upon  the  petition 
of  a  consumer. 

8.  To  fix  the  quality  and  price  of  gas  or  electricity  upon  petition  of 
the  mayor  of  a  town  or  the  board  of  selectmen  or  twenty  consumers. 

9.  To  fix  the  price  of  gas  or  electricity  upon  petition  of  the  company. 

10.  To  test  electric  meters  on  petition  of  a  consumer. 

11.  To  investigate  accidents. 

12.  To  test  and  seal  all  gas  meters  before  installation. 

13.  To  test  all  gas  for  candle  power  and  for  sulphur,  ammonia,  and 
other  impurities. 

14.  To  enforce  provisions  of  a  recent  statute  as  to  smoke  in  Boston, 
Brookline,  Cambridge,  and  other  cities. 

15.  To  regulate  all  issues  of  stocks  and  bonds  and  all  consolidations 
of  gas  and  electrical  companies. 

II. 

ORGANIZATION  AND   OFFICE   SYSTEM. 

The  Commission  consists  of  Forrest  E.  Barker,  chairman,  Morris 
Schaff,  and  Alonzo  R.  Weed.  Chairman  Barker  is  a  lawyer  and  has 
served  on  the  Board  since  the  seventies.  Mr.  Weed  is  an  engineer,  a 
graduate  of  West  Point  and  has  just  been  reappointed  for  the  ninth  or 
tenth  time.  The  commissioners  are  appointed  by  the  governor  at  a 
salary  of  $5,000.00  for  the  chairman  and  $4,500.00  for  the  other  two 
commissioners.  The  commissioners  devote  their  entire  time  to  the 


62  REPORT   ON    RAILROAD   AND   PUBLIC   SERVICE   COM  M  l>si<  i\ 

duties  of  the  office  and  seem  to  perform  a  very  large  amount  of  work. 
Their  report  is  among  the  most  thorough  and  comprehensive  of  any  of 
the  reports  published  by  state  commissions. 

2.  Employees. 

The  employees  consist  of  a  clerk  appointed  by  the  governor,  one  chief 
and  two  assistant  gas  inspectors,  four  inspectors  or  testers  of  meters,  one 
electrical  inspector  and  three  stenographers.  All  the  salaries  and 
expenses  are  paid  by  the  gas  and  electric  companies  in  proportion  to 
their  gross  receipts. 

3.  Office  System. 

Stenographic  reports  are  taken  of  all  hearings  and  the  original  notes 
are  firmly  bound  in  black  leather  volumes  which  are  then  filed  away  in 
the  vault.  This  is  an  excellent  idea,  apparently  original  with  this 
board  and  worthy  of  emulation.  The  annual  reports  of  the  corporations 
are  neatly  bound  when  returned,  those  of  private  gas  companies  in  one 
color,  those  of  private  electric  companies  in  another  and  those  of  muni- 
cipally owned  plants  in  still  another  color. 

III. 

RATE    FIXING. 

Chairman  Barker  pointed  out  that  the  Board  does  not  have  power 
on  its  own  initiative  to  fix  rates.  He  said  that  his  Board  had  discour- 
aged legislation  to  that  end,  for  the  reason  that  the  public  would  then  be 
inclined  to  lose  their  initiative  in  the  matter  of  filing  complaints  and  for 
the  reason  that  the  Board  would  then  be  subject  to  severe  criticism  for 
failure  to  institute  investigations  in  certain  cases.  He  pointed  out, 
however,  that  when  a  reduction  in  rates  is  petitioned  for  by  the  Mayor 
or  the  Board  of  Selectmen  or  twenty  consumers,  the  Board  has  the  power 
to  fix  the  rate.  On  other  occasions  the  Board  at  times  compels  the 
reduction  of  a  rate  as  a  condition  to  the  approval  of  a  stock  or  bond 
issue. 

IV. 

STOCKS,     BONDS,    CONSOLIDATION. 

There  is  hardly  ever  any  opposition  in  cases  of  this  kind.  The  Board 
hears  the  evidence  presented  and  then  itself  goes  carefully  into  the 
value  of  the  plant  and  the  financial  condition  of  the  company  before 
issuing  its  certificate.  In  the  year  1910,  twenty-nine  applications  for 
approval  of  issue  of  stocks  and  bonds  were  decided.  The  amount  of 
security  asked  for  was  $3,803.400,  and  the  amount  approved  $2,969,600. 
The  Board  at  times  imposes  conditions  to  its  permission;  for  instance, 
that  a  certain  amount  of  the  capital  stock  should  be  written  off,  or  a 
dividend  reduced  or  an  assessment  made  to  bring  up  the  capital  account. 
The  policy  of  this  Board,  as  well  as  the  experience  of  the  New  York 


REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE    COMMISSIONS.  63 

Commissions  of  both  districts,  shows  the  necessity  of  giving  to  the 
Commission  the  power  to  impose  conditions  on  the  approval  of  stock 
and  bond  issues. 

The  Massachusetts  Board  has  the  power,  on  granting  applications  for 
issues  of  bonds,  and  it  is  its  duty,  to  determine  the  price  for  which 
the  bonds  shall  be  sold.  This  is  an  unpleasant  duty  and  nobody  is 
ever  satisfied  with  the  decision  of  the  Board  on  this  question. 

V. 

NEW    GAS    OR    ELECTRIC    PLANTS. 

Sections  25  and  26  of  the  statute  provide  that  no  gas  or  electric 
company  shall  use  the  streets  of  a  city  or  town  without  the  consent  of 
the  mayor  or  aldermen  or  selectmen  granted  after  notice  by  publication 
and  a  formal  hearing.  Section  27  provides  that  any  person  aggrieved 
by  the  decision  may  within  thirty  days  appeal  to  the  board  of  gas  and 
electric  light  commissioners,  whose  decision  shall  be  final.  Chairman 
Baker  told  me  that  appeals  were  taken  in  practically  all  cases  and  that 
in  only  one  or  two  cases  had  the  Board  permitted  the  second  utility 
to  come  into  the  field.  "While  his  Board  has  not  put  itself  on  record 
as  formulating  any  definite  policy  in  this  matter,  these  results  speak 
for  themselves.  I  referred  to  objections  which  I  had  heard  concerning 
this  policy  as  applied  to  railroads,  whereupon  Chairman  Barker  answered 
that  there  is  no  remedy  so  sure  or  so  speedy  to  secure  adequate  service 
by  the  existing  company  as  the  power  of  the  Board  to  grant  or  withhold 
a  certificate  to  a  second  company. 

In  answer  to  the  suggestion  that  such  a  course  of  procedure  might 
soon  dissuade  new  companies  from  making  further  applications,  Mr. 
Barker  said  that  it  is  always  easy  to  stir  up  an  agitation  for  a  citizens' 
or  other  new  gas  or  electric  company  if  the  service  of  the  existing  com- 
pany becomes  too  poor. 

VI. 

ACCOUNTS. 

The  board  has  prepared  a  carefully  worked  out  form  of  accounts  and 
reports,  which  aims  at  simplicity,  so  that  the  matters  presented  shall 
help  the  public  ascertain  the  simple  question  as  to  whether  the  company 
is  or  is  not  making  too  large  a  profit.  This  commission  has  done  the 
pioneer  work  of  the  country  in  the  matter  of  the  prescription  of  forms  of 
accounts  for  gas  or  electric  companies.  When  the  'California  Commis- 
sion secures  jurisdiction  over  gas  and  electric  companies,  it  will  do 
well  to  examine  carefully  the  forms  prescribed  by  the  Massachusetts 
board,  copies  of  which  were  sent  to  the  California  Commission  at  my 
request. 


64  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

VII. 

LITIGATION. 

In  all  its  history,  this  Board  has  had  only  a  single  case  in  court. 


C. 
BOARD  OF  HIGHWAY  COMMISSIONERS. 

This  Board,  among  other  powers,  has  jurisdiction  over  all  telegraph 
and  telephone  companies  within  the  state.  I  was  unable  to  visit  the 
Board. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  65 

NEW  YORK. 

FIRST  DISTRICT. 

I. 

INTRODUCTION. 

The  extent  of  this  Commission's  jurisdiction  has  already  been  dis- 
cussed while  considering  the  Commission  of  the  second  district.  As 
there  stated,  its  office  is  in  New  York  City.  The  largest  portion  of  the 
work  of  the  Commission  of  the  first  district  arises  from  its  control  over 
subways  and  rapid  transit,  as  the  successor  of  the  Board  of  Rapid 
Transit  Commissioners  of  New  York  City.  Out  of  489  employees  of  the 
Commission  in  June  1911,  272  were  directly  and  solely  concerned  with 
this  branch  of  the  work.  Two  thirds  of  the  running  expenses  of  the 
Commission,  irrespective  of  the  cost  of  the  construction  of  subways, 
are  directly  chargeable  to  this  branch  of  the  work.  The  Commission 
has  but  little  to  do  with  steam  surface  railways.  Such  of  these  rail- 
roads as  have  their  terminus  in  New  York  City  keep  up  adequate  service 
and  facilities  without  any  action  on  the  part  of  the  Commission.  The 
extent  of  these  railroads  within  the  city  of  New  York  is  so  small  that 
no  questions  affecting  the  rates  within  the  city  of  New  York  have 
arisen.  Apart  from  its  subway  work,  the  attention  of  the  Commission 
is  directed  largely  to  street  railways  and  to  gas  and  electric  plants 
within  the  city  of  New  York. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.     The  Commission. 

The  commissioners  are  William  R.  "Willcox,  chairman,  Milo  R.  Malt- 
bie,  John  E.  Eustis,  Win.  McCarroll  and  J.  Sergeant  Cram.  Chairman 
Willcox  was  practising  law  at  the  time  of  his  appointment  by  Governor 
Hughes.  Mr.  Maltbie  is  a  Ph.D.  of  Columbia  University,  a  thorough 
student  of  political  economy  and  a  hard  worker.  He  does  most  of  the 
public  writing  for  the  Commission  and  also  works  out  and  writes  a 
large  portion  of  the  opinions  of  the  Commission.  He  and  Commissioner 
Bassett,  whose  term  recently  expired,  did  most  of  the  work  in  connection 
with  stock  and  bond  issues.  Mr.  Eustis  is  a  lawyer.  Mr.  McCarroll  was 
formally  a  leather  merchant.  Mr.  Cram  was  recently  appointed  by 
Governor  Dix  in  place  of  Commissioner  Bassett,  who  was  regarded 
as  an  extremely  efficient  commissioner. 

As  is  the  case  in  the  second  district,  the  commissioners  of  the  first 
district  are  appointed  by  the  governor  and  devote  their  entire  time  to 
the  work.  Their  salary  is  likewise  $15,000  a  year. 


66  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE    COMMISSIONS. 

2.     The  Office. 

The  office  is  divided  into  the  following  bureaus : 
(a)  Executive. 
(6)   Chief  Engineer. 

(c)  Transportation  engineer. 

(d)  Gas  and  electricity. 

(e)  Franchises. 

(/)   Statistics  and  accounts. 

(a)  Executive. 

The  Secretary,  Travis  H.  Whitney,  is  a  member  of  the  class  of  1900 
at  Harvard  and  of  1903  at  the  Harvard  Law  School.  He  has  the  work 
of  the  office  exceptionally  well  in  hand,  and  directs,  with  considerable 
ability,  the  administrative  work  of  the  Commission.  The  executive 
office  apart  from  the  secretary,  consists  of  the  counsel  and  his  office, 
and  of  sixty-four  employees,  of  whom  thirty-two  are  clerks,  and  sixteen 
stenographers.  Among  the  other  employees,  are  two  assistant  secre- 
taries, one  librarian,  one  purchasing  agent  and  one  photographer. 

(b)  Chief  Engineer. 

The  attention  of  the  chief  engineer  and  his  department  is  confined 
entirely  to  subway  construction  work.  The  chief  engineer  has  an  office 
force  and  an  engineer  of  subway  construction,  under  whom  are  six 
divisions  and  a  sewer  division  and  a  division  of  design.  There  are  two 
hundred  and  seventy-one  men  directly  under  the  Chief  Engineer. 

(c)  Transportation  Engineer. 

The  transportation  engineer,  in  addition  to  his  office  force,  has  divi- 
sions of  transit  inspection,  equipment  inspection  and  accidents  and 
complaints.  The  division  of  transit  inspection  employs  forty-three  per- 
sons, including  thirty-two  inspectors  and  six  or  eight  assistant  engineers. 
The  division  of  equipment  inspection  consists  of  ten  railway  engineers, 
five  electrical  engineers  and  one  inspector.  The  division  of  accidents 
and  complaints  consists  of  one  assistant  electrical  engineer  and  five 
inspectors. 

(d)  Gas  and  Electricity. 

The  gas  and  electricity  bureau  consists  of  thirty-three  employees, 
among  whom  are  one  secretary,  six  inspectors  and  twenty-three  gas 
meter  testers. 

(e)  Franchise  bureau. 

The  franchise  bureau  consists  of  the  chief  of  bureau  and  ten 
employees. 

(/)     Division  of  statistics  and  accounts. 

Tliis  division  consists  of  the  chief  statistician  and  seventeen  employees, 
including  five  statisticians  and  six  accountants  and  six  stenographers 
and  clerks. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  67 

The  budget  is  about  $1,000,000  a  year.  The  state  of  New  York  pays 
the  salaries  of  the  commissioners,  the  counsel  and  the  secretary  and  the 
city  of  New  York  pays  the  other  expenses.  The  city  bears  its  share  of 
the  expenses  by  means  of  short  term  notes  which  are  placed  in  the  next 
year's  city  budget  as  a  part  of  the  city's  indebtedness.  For  printing 
alone,  apart  from  the  subway  and  rapid  transit  work,  the  Commission 
last  year  spent  over  $35,000.00. 

3.     Office  System. 

The  secretary  is  the  administrative  head  of  the  Commission.  I  ob- 
served the  number  of  men  coming  into  his  office  during  the  two  days  I 
was  there  and  can  bear  witness  to  the  very  large  number  of  persons 
whom  he  sees  during  the  day.  These  are  partly  members  of  the  office 
force  coming  to  him  for  their  instructions  and  rendering  reports  to  him, 
partly  representatives  of  the  press  and  partly  third  parties.  The  secre- 
tary handles  all  the  mail.  A  stenographer  opens  the  mail  early  in  the 
morning  and  writes  on  a  tag,  in  duplicate,  the  general  nature  of  the 
letter,  with  a  reference  to  the  person  who  wrote  it.  An  assistant  secre- 
tary then  stamps  on  the  tag  a  reference  to  the  person  or  department  to 
whom  the  letter  is  to  go.  When  the  secretary  arrives  in  the  office,  he 
glances  over  the  letters  and  tags,  and  the  letters  are  then  distributed. 
One  of  the  duplicate  tags  goes  with  the  letter  and  the  other  is  kept  in  the 
secretary 's  office  and  filed,  so  that  he  can  determine  at  once  to  whom  the 
letter  was  assigned.  When  the  letter  is  returned  with  its  answer,  the 
second  tag  is  taken  off  and  filed  with  the  first.  The  secretary  person- 
ally signs  all  letters  which  go  out,  except  those  of  the  legal  and  engineer- 
ing departments.  The  secretary  also  prepares  carefully  the  work  to  be 
taken  up  by  the  Commission  at  its  meetings. 

III. 

LEGAL     DEPARTMENT. 

The  legal  department  is  headed  by  James  S.  Coleman,  counsel  for  the 
Commission,  who  receives  a  salary  of  $10,000.00  per  year.  His  office 
force  consists  of  five  assistant  counsel,  two  junior  assistant  counsel,  a 
secretary  to  counsel,  four  stenographers  and  four  clerks.  One  assistant 
counsel  draws  all  the  orders  in  stock  and  bond  cases  and  similar  matters, 
besides  taking  care  of  legislation  affecting  the  commission.  Another 
counsel  and  two  assistants  handle  the  Commission's  rapid  transit  and 
subway  work.  Another  assistant  counsel  has  charge  of  matters  arising 
out  of  the  railroad  law,  such  as  grade  crossings,  service  and  the  like. 

This  Commission  seems  to  have  more  legal  work  than  any  other  rail- 
road or  public  service  commission  in  the  United  States.  This  condition 
arises  partly  from  the  large  number  of  contracts  and  agreements  which 
must  be  prepared  in  connection  with  the  Commission's  subway  work, 
and  partly  from  the  fact  that  this  Commission  seems  to  have  more  litiga- 


68  REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS. 

tion  than  any  similar  commission.     The  large  amount  of  this  litigation 
seems  to  be  due  to  three  causes : 

1.  Unfavorable  judges. 

2.  Antagonistic  corporations. 

3.  Action  on  the  part  of  the  Commission  in  exercising  powers  which 
the  courts  later  hold  are  not  conferred  by  the  act. 

1.  Writ  of  review. 

The  original  intention  of  Governor  Hughes  and  the  framers  of  the 
statute  was  that  there  should  be  no  appeal  or  review  of  an  order  of  the 
Commission,  the  complainant  being  left  to  his  remedy  by  injunction. 
The  state  courts,  however,  held  that  the  remedy  of  review  prescribed  by 
the  code  of  civil  procedure  would  lie.  The  commissioners  are  strongly 
opposed  to  the  right  of  review  and  are  apparently  preparing  to  amend 
the  statute  so  as  to  take  a\vay  this  right,  as  soon  as  they  can  secure  a 
favorable  legislature.  One  of  the  assistant  counsel  showed  me  the 
transcript  in  the  Third  Avenue  case.  The  printed  volumes  of  the  tran- 
script are  at  least  two  feet  high.  The  corporations,  in  presenting  their 
cases,  put  in  every  conceivable  kind  of  testimony,  and  the  Commission 
itself  includes  the  voluminous  reports  and  records  which  it  may  have 
considered  in  arriving  at  the  decision. 

Mr.  Coleman  strongly  favors  the  right  of  review  and  points  out  that 
trial  by  injunction  would  take  much  longer  and  would  be  far  more 
cumbersome  than  review.  He  might  also  have  pointed  out  that  in  the 
absence  of  the  right  of  review  in  the  state  courts  there  is  nothing  to 
prevent  a  corporation  from  going  at  once  to  the  federal  courts  for  an 
injunction,  freed  from  any  condition  which  the  legislature  may  pre- 
scribe for  such  cases  in  the  state  courts. 

2.  Litigation. 

The  New  York  state  judges  have  on  every  possible  occasion  whittled 
down  the  powers  of  the  Commission.  The  lower  federal  judges  seem 
also  to  be  unfavorably  inclined.  The  famous  Consolidated  Gas  case, 
which  was  finally  decided  in  favor  of  the  Commission  in  the  United 
States  Supreme  Court,  was  decided  adversely  to  the  Commission  in  every 
inferior  court.  The  following  are  some  of  the  leading  cases  affecting 
the  powers  of  the  Commission : 

a.  Willcox  vs.  Consolidated  Gas  Company,  212  U.  8.  40. 

In  this  case,  the  Supreme  Court  of  the  United  States  finally  sustained 
a  statute  fixing  the  price  of  gas  at  80  cents. 

b.  Long  Acre  Electric  Light  and  Power  Company  Case. 

In  this  case,  the  Commission,  on  general  grounds  of  public  policy, 
refused  authority  for  the  issue  of  stocks  and  bonds  of  the  newly  formed 
Long  Acre  Electric  Light  and  Power  Company.  The  Commission 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  69 

regarded  the  matter  as  simply  an  effort  on  the  part  of  the  applicant  to 
secure  the  desired  permission  so  that  it  might  then  be  in  a  position  to 
force  a  sale  to  the  Consolidated  Gas  Company.  The  courts  reversed  the 
order  of  the  Commission,  denying  the  desired  authority,  and  the  Com- 
mission thereupon  on  July  28,  1911,  while  I  was  visiting  them,  finally 
granted  the  desired  certificate. 

c.  South  Shore  Traction  Company  Case. 

This  was  an  application  to  build  an  electric  railway  from  Queens 
County  over  the  Queensborough  Bridge  into  Manhattan.  The  Commis- 
sion found  that  public  convenience  and  necessity  would  be  subserved 
by  the  construction  of  the  contemplated  railway,  but  held  that  the 
franchise  granted  by  the  city  of  New  York  did  not  sufficiently  protect 
the  city  because  it  did  not  provide  sufficiently  for  the  use  of  the  bridge 
by  possible  later  companies.  The  court  overruled  the  Commission,  on 
the  ground  that  the  Commission's  power  as  to  franchises  was  merely 
a  perfunctory  power  of  approval,  without  the  right  to  impose  conditions 
or  qualifications. 

d.  The  Third  Avenue  Railroad  Case. 

This  was  a  case  of  reorganization.  The.  Commission  refused  to  author- 
ize the  issue  of  some  $73,000,000  of  stocks  and  bonds,  on  the  ground 
that  the  real  value  of  the  plant  was  not  over  $58,000,000.  The  court 
held  that  under  a  proper  construction  of  the  language  of  the  statute  as 
to  reorganization,  the  companies  had  the  full  power  to  issue  up  to  the 
combined  stocks  and  bonds  of  the  component  companies  and  that  the 
Commission  had  no  power  to  impose  any  condition  which  would  lower 
this  total,  even  for  the  purpose  of  squeezing  out  water.  These  people 
applied  twice  to  the  Commission  and  were  twice  refused.  The  decision 
of  the  appellate  division  overruling  the  Commission  was  handed  down 
on  June  21,  1911.  The  Commission  intends  to  appeal  the  case. 

IV. 

STOCKS    AND     BONDS. 

Apparently  the  most  important  work  of  the  Commission,  apart  from 
its  subway  and  rapid  transit  work,  is  that  in  connection  with  applica- 
tions for  approval  of  stock  and  bond  issues.  The  rules  of  procedure 
in  these  matters  are  similar  to  those  of  the  second  district  already 
referred  to.  The  Commission  makes  a  very  thorough  investigation  in 
each  case,  and,  as  a  part  of  its  inquiry,  at  times  makes  a  physical  valua- 
tion of  the  plant.  There  is  considerable  question,  as  a  matter  of  law, 
whether  the  Commission  has  been  granted  the  power  to  impose  con- 
ditions on  the  granting  of  the  desired  permission.  The  Commission  acts 
on  the  theory  that  it  has  this  right,  and  often  imposes  quite  a  number 
of  conditions.  A  typical  order  was  issued  on  July  28,  1911,  in  the  mat- 


70  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

ter  of  the  application  of  the  Long  Acre  Electric  Light  and  Power 
Company  for  authority  to  issue  $10,000,000  of  preferred  stock  and 
$50,000,000  of  bonds  to  be  secured  by  mortgage  on  its  property.  The 
Commission 's  order  authorized  an  issue  of  $2,000,000  of  capital  stock  and 
of  $50,000,000  of  bonds,  of  which  bonds,  however,  only  $4,000,000  may  at 
present  be  issued.  After  specifying  the  purpose  for  which  the  money 
may  be  used,  the  order  sets  out  the  following  conditions: 

1.  No  bond  shall  issue  until  the  existing  mortgage  has  been  satisfied. 

2.  $2.000,000  of  bonds  may  issue  only  when  $1,000,000  of  new  stock 
has   been    fully   paid    in.      The   same    condition    governs    the    second 
$2.000,000  of  bonds.     The  bonds  may  not  be  sold  at  less  than  90  per 
cent  of  par,  and  the  proceeds  must  be  applied  as  specifically  directed. 

3.  If  the  company  proposes  to  sell  the  bonds  for  less  than  90  per 
cent  of  par,  it  must  publish  notice  of  the  sale  and  permit  a  public 
bidding  under  the  control  of  the  Public  Service  Commission. 

4.  Discounts,  commissions  and  expenses  shall  not  exceed  $400,000 
and  shall  be  amortized  out  of  the  income  of  the  company  before  July  1, 
1961. 

5.  The  Company  must  keep  full  accounts  of  receipts  and  applications 
of  proceeds  of  sales  and  make  each  month  a  verified  report  of  the  same 
to  the  Commission. 

6.  No  proceeds  shall  be  spent  until  an  itemized  bill  therefor  has  been 
submitted  to  the  Commission. 

7.  Stocks  and  bonds,  under  this  authority,  must  issue  prior  to  July  1. 
1913. 

8.  A  duplicate  original  of  the  mortgage  must  be  filed  with  the  secre- 
tary of  the  Commission. 

Commissioner  Maltbie  states  that  in  his  judgment  the  present  law 
concerning  applications  for  approval  of  stock  and  bond  issues  is  satis- 
factory, except  that  the  statute  should  clearly  confer  upon  the  Commis- 
sion the  power  to  prescribe  conditions  on  the  issue  of  stocks  and  bonds, 
should  make  the  power  of  the  Commission  apply  to  reorganizations,  and 
should  provide,  in  addition  to  its  present  provisions,  that  notes  of  ;i 
corporation  running  for  less  than  a  year  can  not  in  turn  be  replaced 
by  other  notes. 

The  street  railway  conditions  in  New  York  City  show  very  clearly  the 
necessity  of  public  control  over  the  issue  of  stocks  and  bonds.  Although 
New  York  City  is  the  richest  passenger  traffic  territory  in  the  country, 
every  street  railway  company  in  that  city  is  in  the  hands  of  a  receiver. 
The  reason  is  that  every  time  any  of  the  extremely  numerous  organiza- 
tions and  reorganizations  in  street  railway  properties  were  effected,  the 
amount  of  capital  stock  was  increased  and  the  issue  of  bonds  was 
augmented.  The  result  is  that  today  these  companies  are  vainly  trying 
to  pay  interest  on  a  tremendous  amount  of  watered  capital  and  exces- 


REPORT    ON    RAILROAD    AND    PUBLIC    SERVICE    COMMISSIONS.  71 

sive  bond  issues.  It  further  follows  that  the  companies  have  no  money 
for  the  betterment  of  the  service  or  for  the  purchase  of  necessary 
additional  equipment  or  facilities.  The  investing  public  has  suffered 
because  of  excessive  capitalization,  and  the  traveling  public  because 
of  inability  to  improve  service,  facilities  and  equipment.  If  at  the 
time  these  organizations  and  reorganizations  started,  an  efficient  state 
commission  had  had  control  of  stock  and  bond  issues,  the  present  condi- 
tion of  affairs  would  never  have  resulted. 

V. 

CERTIFICATES    OF    PUBLIC    CONVENIENCE    AND    NECESSITY. 

Section  53  of  the  Public  Service  Commission  law,  referring  to  rail- 
roads, street  railroads  and  common  carriers,  and  similar  sections 
applicable  to  gas  and  electric  companies  and  telegraph  and  telephone 
companies,  provide  that  no  company  shall  begin  the  construction  of 
its  plant  without  first  securing  from  the  Public  Service  Commission 
a  certificate  of  public  convenience  and  necessity.  Dr.  Wilcox  told  me 
that  the  public  service  field  had  already  been  so  thoroughly  covered  in 
New  York  City  that  very  few  applications  have  been  made  or  will  be 
made  for  certificates  of  public  convenience  and  necessity.  No  such 
application  has  been  made  with  reference  to  gas  and  electric  com- 
panies. Apparently  no  case  has  arisen  as  to  railway  companies  except 
the  South  Shore  Traction  Company  case,  supra,  in  which  case,  Commis- 
sioner Bassett  specifically  found  that  public  convenience  and  necessity 
existed  but  refused  a  certificate  because  of  disapproval  of  certain 
provisions  of  the  franchise  granted  by  the  city. 

VI. 

APPROVAL    OF    FRANCHISES. 

The  sections  referred  to  in  section  V  hereof  further  provide  that  the 
corporations  therein  specified  shall  not  exercise  any  franchise  or  right 
not  theretofore  lawfully  exercised  without  having  first  secured  the 
permission  and  approval  of  the  proper  Commission.  The  statute  con- 
tains similar  provisions  with  reference  to  the  transfer  of  franchises  or 
stock.  In  the  South  Shore  Traction  Company  case,  the  court  held 
that  the  Commission  does  not  have  the  right  to  refuse  approval  to  the 
exercise  of  a  franchise,  except  in  so  far  as  the  public  safety  is  affected. 
If  this  is  the  law,  the  statutory  power  in  this  respect  is  at  present  largely 
ineffective. 

VII. 
FRANCHISE    BUREAU. 

The  Commission  of  the  first  district  is  the  only  commission  in  the 
country  which  has  a  special  franchise  bureau.  The  head  of  the  bureau 
is  Dr.  Delos  F.  Wilcox,  a  Ph.D.  of  Columbia,  author  of  "Municipal 


72  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

Franchises"  and  a  number  of  pamphlets  and  magazine  articles,  and  an 
unusually  well  posted  man.  Dr.  "Wilcox  has  made  a  thorough  study  of 
all  the  organizations  and  reorganizations,  mergers  and  consolidations, 
affecting  the  public  service  corporations  of  this  district  and  of  all  the 
franchises  which  have  been  granted  to  them.  He  furnished  the  material 
from  which  Commissioner  Maltbie  published  a  two  hundred  and  thirty 
page  book  on  "Franchises  of  Electrical  Corporations  in  Greater  New 
York,"  accompanied  by  an  illuminative  chart. 

1.     Reports  and  documents  from  companies. 

This  bureau  secured  from  each  company  subject  to  the  jurisdiction 
of  the  Commission  a  certified  copy  of  each  document  affecting  its  organi- 
zation, reorganizations,  consolidations,  mergers,  etc.,  and  of  every  deed, 
franchise,  lease  or  agreement  and  all  miscellaneous  documents  affecting 
its  corporate  existence.  The  bureau  has  secured  a  very  large  number  of 
these  documents  and  has  filed  them  by  companies,  each  document  in  a 
separate  file  with  a  number.  A  card  index  is  arranged  by  original 
companies.  As  to  each  such  company,  the  index  has  subheads  for  cer- 
tificate of  incorporation,  franchises,  leases,  operating  agreements,  etc. 
Maps  secured  from  the  companies  in  connection  with  their  franchises 
are  also  indexed  but  separately  filed. 

'2.     Franchise  books. 

Dr.  AVileox's  office  has  prepared  blue  prints  showing  the  history 
of  every  franchise  that  has  been  granted  within  the  limits  of  the  city 
of  New  York.  Each  map  shows  some  franchise  or  franchises,  trackage 
actually  used  and  trackage  owned  and  trackage  operated  under  lease, 
with  appropriate  references.  Along  the  edges  of  the  print,  Dr.  "Wilcox 
has  written  historical  data  showing  the  history  of  each  franchise.  These 
maps  follow  each  other  in  chronological  order  and  are  pasted  into  four 
large  scrap  books,  one  book  for  each  borough. 

3.  History  charts. 

Dr.  Wilcox  has  also  prepared  charts  showing  diagrammatically  the 
history  of  each  company  performing  a  certain  kind  of  service,  with  the 
original  organization  and  all  successive  organizations,  reorganizations, 
mergers,  consolidations,  receiverships,  etc.,  including  the  stock  owned  in 
other  corporations.  These  charts  show  as  to  each  kind  of  public  service, 
a  large  number  of  original  companies  gradually  merging  into  one  or 
two  which  now  control  the  situation.  Copies  both  of  franchises  and 
history  charts  in  so  far  as  they  affect  electrical  corporations  will  be  found 
in  the  book  of  "Franchises  of  Electrical  Corporations  in  Greater  New 
York, ' '  above  referred  to. 

4.  Value  of  franchise  compilations. 

The  franchise  compilations  so  prepared  are  of  great  assistance  to  the 
Commission  in  the  matter  of  the  approval  of  stock  and  bond  issues  and 


REPORT   ON  RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  73 

may  also  be  used  as  the  basis  for  actions  to  forfeit  a  considerable 
number  of  unused  franchises.  This  data  also  shows  that  in  some  cases 
the  public  service  corporations  are  using  the  streets  of  the  city  of  New 
York  without  any  franchise  at  all. 

There  is  no  statutory  provision  in  New  York  for  an  indeterminate 
franchise,  similar  to  that  of  Wisconsin,  except  in  the  Rapid  Transit 
Act,  affecting  the  subways  and  the  rapid  transit  system  of  New  York 
City. 

VIII. 
PHYSICAL    VALUATION. 

The  Commission  has  made  no  physical  valuations  except  in  connection 
with  a  few  matters  of  approval  of  stock  and  bond  issues. 

IX. 

NEWSPAPERS. 

The  relationship  between  the  Commission  and  the  press  is  very  close. 
An  Associated  Press  correspondent  has  his  office  with  the  Commission. 
The  first  assistant  secretary  spends  almost  his  entire  time  in  preparing 
for  the  press  statements  of  what  the  Commission  is  doing,  including 
abstracts  of  opinions.  While  I  was  in  the  office,  a  constant  stream 
of  newspaper  men  kept  coming  in  for  news.  Secretary  Whitney  lays 
great  stress  on  this  part  of  the  Commission's  work.  He  suggests  for 
California  a  card  index  of  all  the  newspapers  of  the  state  with  their 
affiliations,  dates  of  publication,  owners,  etc.,  and  a  system  of  sending 
out  statements  to  all  newspapers  which  are  willing  to  run  Commission 
news. 

X. 

LIBRARY. 

The  Commission  has  employed  Dr.  Whitten,  another  Columbia  Ph.D., 
who  receives  a  salary  of  some  $3,600.00,  and  spends  his  entire  time  in 
collecting  a  library  of  reference  books  and  reports  and  newspaper  clip- 
pings and  magazine  articles,  referring  to  the  subject-matter  of  the  Com- 
mission 's  work.  The  Commission's  library  is  by  far  the  most  complete 
of  any  railroad  or  public  service  commission  visited  by  me. 

XI. 

ACCIDENTS. 

Immediate  notice  of  every  accident  is  given  to  the  Commissfcm  by 
telephone  or  telegraph.  One  of  the  Commission's  inspectors  is  on  the 
ground  within  a  few  moments  and  takes  the  names  of  the  witnesses 
and  gathers  information  concerning  the  cause  of  the  accident.  The 
Commission  has  a  photographer  who  takes  photographs  of  the  surround- 
ings whenever  applicable.  In  serious  cases,  the  Commission  also  holds 
<i  hearing  of  its  own.  In  case  of  death,  it  always  sends  a  representative 
to  the  coroner's  inquest.  Within  twenty-four  hours  after  the  accident, 
the  company  must  send  in  a  written  report. 


74  REPORT   ON   RAILROAD    AND   PUBLIC   SERVICE   COMMISSIONS. 


MARYLAND. 

I. 
INTRODUCTION. 

The  Public  Service  Commission  of  Maryland  was  created  by  Act  of 
April  5,  1910.  The  Commission  has  jurisdiction  over  all  railroads  of 
every  kind,  common  carriers  and  gas,  electricity,  telephone,  telegraph 
and  water  companies.  The  Commission  started  work  in  May,  1910,  and 
is  still  in  the  formative  stage. 

The  statute  seems  to  have  been  modeled  very  largely  on  the  New 
York  Act  and  partly  on  the  Interstate  Commerce  Commission  Act. 

II. 

ORGANIZATION   AND   OFFICE   SYSTEM. 

1.  The  Commission. 

The  commissioners  are  James  M.  Ambler,  Chairman,  Philip  Laird, 
and  Joshua  "W.  Bering.  Chairman  Ambler  is  an  attorney.  Dr.  Hering 
is  a  practicing  physician. 

2.  Employees. 

The  Commission  has  a  counsel  and  assistant  counsel.  The  secretary 
is  Louis  M.  Duvall.  There  are  several  clerks  in  the  office.  The  Com- 
mission's engineer  is  now  engaged  in  making  a  physical  inspection  of 
the  public  service  corporations  of  the  state,  preliminary  to  a  physical 
valuation. 

ill. 

STOCK    AND     BOND     ISSUES. 

The  Maryland  Statute  contains  provisions  similar  to  those  of  the 
New  York  Statute  with  reference  to  the  approval  by  the  Commission 
of  issues  of  stocks  and  bonds.  While  I  was  visiting  the  Commission, 
they  were  considering  an  application  of  a  proposed  railroad  for  per- 
mission to  construct  a  railroad  and  for  an  approval  of  a  stock  and  bond 
issq|.  The  promoters  intended  to  utilize  a  roadbed  constructed  some 
twelve  or  thirteen  years  before,  largely  from  state  and  county  moneys. 
and  to  secure  their  funds  from  a  popular  subscription.  The  pro- 
moters had  not  secured  permission  from  the  county  authorities  to  cross 
the  public  highways  nor  had  they  filed  with  the  Commission  the  data 
required  in  the  Commission's  rules  of  procedure.  The  Commission  w;is 
inclined  to  withhold  consent,  at  least  until  the  necessary  franchise  for 
crossing  the  public  highway  had  been  secured  from  the  county  author- 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  75 

ities.  The  Commission's  disinclination  to  permit  the  establishment  of 
any  more  grade  crossings  entered  largely  into  the  case.  The  attention 
of  the  Commission  seemed  to  be  directed  very  largely  to  the  question  of 
the  certificate  of  public  convenience  and  necessity  and  not  so  much 
attention  was  paid  as  to  the  amount  of  the  stock  or  bond  issue  which 
should  be  authorized. 

As  above  stated,  this  Commission  is  in  its  formative  period.    It  gives 
every  indication  of  doing  good  work  when  it  is  fairly  under  way. 


INTERSTATE  COMMERCE  COMMISSION. 

While  with  the  Interstate  Commerce  Commission,  I  paid  particular 
attention  to  matters  of  litigation  and  to  the  investigation  which  the 
Commisison  is  now  carrying  on  into  the  express  rates  of  the  country. 
I  also  conferred  with  the  Post  Office  Department  in  the  matter  of  cer- 
tain data  which  they  have  secured  from  the  railway  companies  as  to  all 
kinds  of  passenger  train  service,  including  express  and  mail. 

I  also  examined  the  Commission's  filing  system  and  was  shown  the 
method  of  handling  both  formal  and  informal  complaints  from  the 
time  of  their  filing  to  their  final  disposition. 

The  Commissioners  were  all  out  of  town  on  their  vacations,  so  that 
I  had  no  opportunity  to  discuss  with  them  any  of  the  problems  of  public 
regulation  and  control  of  public  service  corporations. 


6— RC 


76  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 


GEORGIA. 

L 

INTRODUCTION. 

The  Railroad  Commission  of  Georgia  was  created  by  act  of  October 
14,  1879.  This  act  provided  for  the  appointment  of  three  commissioners 
to  serve  for  six  years  at  an  annual  salary  of  $2,500.00,  with  jurisdiction 
over  all  railroad  companies  except  street  railroads.  It  was  made  the 
duty  of  the  Commission  to  establish  rates  of  charges.  By  act  of  Decem- 
ber 18,  1890,  it  was  made  the  duty  of  the  Commission  to  investigate  all 
interstate  freight  rates  affecting  Georgia.  The  act  of  October  17,  1891, 
made  it  the  duty  of  the  Commission  to  inspect  railroads,  on  complaint 
made,  with  respect  to  their  safety.  Another  act  of  October  17,  1891, 
extended  the  jurisdiction  of  the  Commission  to  the  fixing  of  storage 
rates.  The  act  of  October  21,  1891,  extended  the  jurisdiction  of  the 
Commission  to  express  and  telegraph  companies,  with  power  to  fix  their 
rates.  The  act  of  August  21,  1906,  provided  that  the  commissioners 
should  be  elected  instead  of  appointed.  The  act  of  August  22,  1907, 
gave  to  the  Commission  its  present  powers.  It  increased  the  number  of 
commissioners  from  three  to  five  and  gave  to  the  Commission  jurisdic- 
tion over  railroads  of  all  kinds,  common  carriers,  express  companies, 
telephone,  telegraph,  dock,  wharfage,  gas,  electric  light  and  power  and 
cotton  compress  companies. 

II. 

ORGANIZATION  AND   OFFICE  SYSTEM. 

1.     The  Commission. 

The  commissioners  are  H.  Warner  Hill,  Chairman,  George  Hillyer, 
0.  B.  Stevens,  Chas.  Murphey  Candler,  and  Joseph  S.  Gray.  Chairman 
Hill  is  a  lawyer  and  has  served  on  the  Board  some  eight  or  ten  years. 
In  1907,  Governor  Hoke  Smith  removed  Joe  Brown,  then  chairman  of 
the  Board.  The  governor  appointed  a  member  in  place  of  Brown  and 
the  law  was  thereafter  amended  so  as  to  add  two  commissioners,  making 
five,  the  two  new  commissioners  to  be  appointed  by  the  governor. 
Judge  Hillyer  was  appointed  by  Governor  Smith  in  1907  and  is  like- 
wise a  lawyer.  Mr.  Candler  fathered  the  present  railroad  commission 
law  in  1907  and  was  likewise  appointed  by  Governor  Smith.  Mr. 
Stevens  is  a  farmer.  Mr.  Gray  is  a  railroad  man.  The  statute  provides 
that  the  chairman  shall  devote  his  entire  time  to  the  duties  of  his  office 
and  that  he  shall  receive  a  salary  of  $4,000.  The  other  commissioners 
are  paid  $2.500  each  and  apparently  do  not  have  to  devote  any  con- 
siderable amount  of  time  to  the  work. 


REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS.  77 

2.  Employees. 

The  employees  of  the  Commission  consist  of  Campbell  Wallace,  sec- 
retary; J.  Prince  Webster,  rate  expert;  an  assistant  rate  expert  and  a 
stenographer.  The  Commission  has  no  engineers  or  inspectors  or 
accountants. 

The  budget  is  twenty-eight  thousand  seven  hundred  dollars  per  year, 
of  which  twenty-three  thousand  seven  hundred  dollars  is  paid  for  sal- 
aries, leaving  three  thousand  dollars  for  contingent  fund  and  two  thou- 
sand dollars  for  printing.  The  Commission  is  very  much  handicapped  for 
lack  of  money.  Though  the  act  of  1907  makes  it  the  duty  of  the  Com- 
mission "to  ascertain  the  cost  of  construction  and  present  value  of  the 
properties  in  Georgia"  owned  by  each  of  the  public  service  corporations 
over  which  the  Commission  has  control,  nothing  has  been  done  for  the 
reason  that  the  legislature  has  provided  no  funds.  As  the  contingent 
fund  of  three  thousand  dollars  must  pay  the  traveling  expenses  of  the 
commissioners  and  most  of  the  expenses  of  running  the  office,  very  little 
money  is  left  for  any  work  outside  of  the  office. 

3.  Office  System. 

The  office  correspondence  is  very  carefully  indexed  in  a  bound  index 
book.  No  card  system  or  letter  press  books  are  kept.  The  incoming 
mail  seems  to  consist  largely  of  weekly  passenger  train  reports,  accident 
reports  and  general  inquiries. 

III. 

LEGAL   DEPARTMENT. 

Judge  Hines  is  special  attorney  for  the  Commission.  His  chief  work 
is  to  write  opinions  on  matters  submitted  to  him  by  the  Commission. 
The  Commission  has  had  almost  no  cases  in  court.  In  1902,  the  Com- 
mission lowered  passenger  fares  and  also  freight  rates.  The  federal 
courts  refused  to  issue  an  injunction  in  the  passenger  case,  preferring 
to  wait  to  see  whether  the  fares  would  prove  confiscatory.  In  the  freight 
case,  however,  a  temporary  injunction  was  issued  by  the  federal  court. 
The  case  has  not  as  yet  been  decided  by  that  court.  In  the  mean  time,  no 
further  reductions  in  freight  rates  have  been  made  by  the  Commission. 

IV. 

RATES. 

The  statute  provides  that  "the  power  to  determine  what  are  just  and 
reasonable  rates  is  vested  exclusively  in  the  Commission."  Under  this 
power,  the  Commission  in  1880  established  maximum  freight  and  pas- 
senger distance  tariffs  with  a  table  of  distances  and  also  a  freight  class- 
ification table.  Changes  in  these  tables  are  made  from  time  to  time, 
especially  in  the  classification  tables.  The  carriers  file  with  the  Com- 


78  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

mission  all  new  tariffs,  and  these,  under  a  general  order,  become  the 
maximum  tariffs  of  the  Commission,  unless  the  rates  are  in  excess  of 
those  theretofore  established  in  the  maximum  tariffs.  Under  general 
order  of  the  Commission,  no  railroad  company  can  change  a  freight  or 
passenger  schedule  or  discontinue  the  same  without  permission  from 
the  Commission.  The  Commission  has  placed  the  railroads  of  the  state 
in  different  classes  as  to  both  passenger  and  freight  business,  and  per- 
mits the  members  of  a  different  class  to  charge  different  maximum 
rates  and  fares. 

V. 

STOCK   AND   BOND   ISSUES. 

Section  8  of  the  act  of  1907  gives  the  Commission  power  to  control 
all  issues  of  stocks  and  bonds  and  contains  provisions  similar  to  those 
in  the  New  York  law,  upon  which  it  was  modeled.  The  Commission  has 
adopted  the  most  detailed  rules  which  I  have  seen  concerning  the  con- 
tents of  the  petition  for  the  approval  of  such  issues.  The  Commission 
hears  the  evidence  presented,  but  apparently  does  not  send  any  one  out 
to  look  at  the  petitioner's  property.  The  Commission  has  no  money 
available  for  this  purpose. 

The  Seaboard  Air  Line  Railway  in  1910  applied  for  and  was  granted 
permission  to  issue  $150,000,000  of  bonds.  This  is  a  foreign  corpora- 
tion. It  stated  to  the  Commission  that,  in  its  judgment,  the  Commission 
had  no  jurisdiction  for  the  reason  that  the  applicant  was  a  foreign  cor- 
poration, but  that  it  desired  to  remove  any  possible  doubt.  After  secur- 
ing the  authority,  the  railroad  refused  to  comply  with  the  order  of  the 
Commission  to  report  the  disposition  of  the  securities,  and  the  use  made 
of  the  money,  and  Judge  Hines  reported  to  the  Commission  that  it  had 
no  authority  to  compel  the  report.  Chairman  Hill  suggests  the  advisa- 
bility of  making  sure  that  the  statutes  prescribe  a  penalty  for  failure 
to  furnish  these  reports. 

Apparently  very  little  thought  has  been  given  by  any  of  the  states 
to  the  question  as  to  whether  a  state  has  the  right  to  insist  on  approval 
by  its  Commission  of  issues  of  bonds,  notes  or  other  evidences  of  indebt- 
edness by  foreign  corporations,  affecting  property  within  the  state. 

VI. 

EXPRESS    RATES. 

The  Southern  Express  Company  is  the  only  express  company  within 
the  state.  The  Commission  several  months  ag*>  instituted  an  investiga- 
tion into  the  rates,  rules  and  regulations  of  this  company  and  prepared 
a  list  of  questions  asking  for  information.  The  Commission  has  not 
hitherto  taken  any  steps  to  ascertain  the  cost  of  the  railroad  end  of  the 
express  service. 


REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS.  79 

VII. 

PUBLIC   UTILITIES. 

These  have  been  under  the  jurisdiction  of  the  Commission  since  1907. 
Only  two  cases  involving  the  rates  of  such  companies  have  come  before 
the  Commission.  No  system  of  accounts  have  been  prescribed.  The 
form  of  annual  return  provides  for  information  concerning  simply  ten 
or  twelve  facts  as  to  the  financial  operations  of  the  companies. 

VIII. 

TELEPHONE  AND  TELEGRAPH  COMPANIES. 

The  remarks  under  section  VII  are  applicable  to  these  companies  as 
weU. 

IX. 

COURT  REVIEW  AND  APPEAL. 

No  review  is  provided  for  by  the  statute.  Judge  Hillyer  tells  me 
that  whenever  the  action  of  the  Commission  is  attacked,  the  procedure 
is  one  de  novo  for  an  injunction.  The  Commission  is  rather  proud  of 
the  fact  that,  with  the  exception  of  the  federal  proceeding  above 
referred  to,  no  adverse  decisions  have  been  rendered  by  the  courts.  The 
powers  of  the  Commission  have  been  uniformly  upheld,  ever  since  the 
case  of  Smith  vs.  Georgia  Railroad,  70  Georgia,  694,  in  which  case  a 
decision  in  favor  of  the  Commission  was  affirmed  by  the  United  States 
Supreme  Court. 

X. 

RAILROAD    MAPS. 

This  Commission,  in  common  with  almost  all  of  the  other  railroad 
commissions,  publishes  at  stated  intervals  a  railroad  map  showing  all 
the  railroads  of  the  state.  The  Georgia  map  shows  on  its  back  the 
census  returns. 

XI. 

PASSENGER  TRAIN    DELAYS. 

This  Commission,  in  common  with  the  Texas  and  Oklahoma  Com- 
missions, receives  from  each  railroad  every  week  a  statement  of  all 
passenger  train  delays  and  the  reasons  therefor.  These  reports  are  then 
filed.  The  Commission  does  not  have  an  inspector  who  can  go  out  and 
personally  investigate  the  delays. 

XII. 

GENERAL  ORDERS,  RULES  AND  REGULATIONS. 

The  Commission  has  prepared  freight  rules;  passenger  rules;  rules 
governing  railroad,  express  and  telegraph  depots,  stations,  agencies  and 
offices;  storage  (demurrage)  rules;  telegraph  rules;  passenger  and 


80  REPORT  ON   RAILROAD  AND   PUBLIC   SERVICE   COMMISSIONS. 

freight  classifications ;  rules,  tariffs  and  classifications  governing  express 
companies ;  and  some  nineteen  general  orders — which  rules,  regulations 
and  orders  are  constantly  referred  to  by  the  commissioners  in  their  con- 
versation. The  commissioners  spoke  to  me  of  the  care  exercised  in 
framing  these  rules  and  orders.  Many  subjects  covered  by  them,  such 
as  the  establishment  of  tariffs,  inhibitions  upon  the  use  of  passes,  the 
filing  of  accident  reports,  etc.,  are,  in  other  states,  provided  for  by 
specific  statutory  enactments,  but  have  been  covered  in  Georgia  under 
the  broad  general  powers  granted  to  the  Commission. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  81 


TEXAS. 

I. 
INTRODUCTION. 

The  Railroad  Commission  of  Texas  was  established  in  1891,  and  has 
jurisdiction  over  steam  railroad  and  express  companies,  but  none  over 
public  utilities.  An  elaborate  stock  and  bond  law  was  approved  on 
April  8,  1893. 

II. 

ORGANIZATION    AND    OFFICE    SYSTEM. 

1.  The  Commission. 

The  commissioners  are  Allison  Mayfield,  chairman,  Win.  D.  "Williams 
and  Joseph  R.  "Wortham.  The  commissioners  were  originally  appointed 
by  the. governor  for  three  year  terms,  but  the  Constitution  was  amended 
in  1894  so  as  to  provide  that  the  commissioners  should  henceforth  be 
elected  for  six  years.  The  commissioners  receive  a  salary  of  $4,000.00 
each.  Governor  Colquitt  was  formerly  a  railroad  commissioner  and 
seems  to  have  been  elected  governor  on  the  record  which  he  made  in  that 
capacity. 

2.  Employees. 

The  secretary  of  the  Commission  is  E.  R.  McLean.  The  Commission 
also  employs  an  engineer,  an  auditor,  a  rate  expert  and  some  four  or 
five  clerks  and  stenographers.  The  secretary  receives  a  salary  of 
$2,000.00  and  the  engineer  $3,000.00.  The  Commission  has  no  inspectors. 
The  engineer  seems  to  do  all  the  inspection  for  valuations  in  connection 
.with  the  stock  and  bond  issues  and  any  other  inspection  which  may  be 
necessary.  The  engineer  of  the  Commission  was  formerly  R.  A.  Thomp- 
son, who  is  regarded  as  one  of  the  best  railroad  commission  engineers 
of  the  country. 

III. 

RAILROAD    RATES. 

The  Commission  fixes  the  moving  rate.  When  the  statute  was  passed, 
the  railroads  had  in  effect  distance  tariffs  in  Texas.  The  Commission 
has  used  these  tariffs  as  a  basis  and  has  established  a  distance  table  for 
class  rates,  some  forty-seven  commodity  rate  tariffs,  and  a  class  rate 
classification.  The  annual  reports  give  the  rate  effective  on  each  rail- 
road. By  reason  probably  of  the  fact  that  the  rates  were  but  little 
lowered  at  the  outset,  the  railroads  did  not  take  the  matter  into  the 
courts.  The  Commission  from  time  to  time  makes  alterations  in  the 
rates  and  classifications  both  on  its  own  initiative  and  on  petition  from 


82  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

the  carrier.  If  a  carrier  wishes  a  rate  to  be  altered  and  writes  a 
letter  to  the  Commission  stating  its  desire,  the  Commission,  if  favorable, 
grants  the  request  by  issuing  a  circular  which  is  mailed  to  the  applicant, 
to  every  railroad  in  the  state  and  to  other  interested  parties.  The  appli- 
cant does  not  file  a  tariff  showing  the  proposed  change,  but  the  Com- 
mission issues  its  circular  in  its  own  form. 

There  has  been  almost  no  freight  litigation  in  the  state.  With  ref- 
erence to  passenger  rates,  the  Commission  ordered  a  2  cent  rate  in  on 
the  Galveston,  Houston  and  Henderson  Railroad  as  a  test  case.  The 
railroad  promptly  secured  an  injunction  and  ultimately  won  out  on  the 
ground  of  confiscation  of  property.  The  Texas  passenger  rate  is  now 
3  cents  per  mile. 

IV. 

EMERGENCY   RATES. 

The  act  of  April  5,  1897,  as  amended  on  June  5,  1899,  gives  the 
Commission  power  "when  deemed  by  it  necessary  to  prevent  interstate 
rate  wars  and  injury  to  the  business  or  interest  of  the  people  or  railroads 
of  the  state,  or  in  case  of  any  other  emergency  to  be  judged  by  the 
Commission,  to  temporarily  alter,  amend  or  suspend  any  existing 
freight  rates,  tariffs,  schedules,  orders  and  circulars  of  any  railroad  or 
part  of  the  railroad  within  the  state." 

I  was  informed  that  the  provision  concerning  the  prevention  of 
interstate  rate  wars  has  little  or  no  meaning.  The  real  purpose  of  the 
provision  was  to  give  power  to  the  Texas  Commission  to  lower  an  intra- 
state  rate  from  a  producing  to  a  consuming  center  in  cases  in  which 
an  interstate  rate  from  a  producing  center  outside  of  the  state  had  been 
lowered,  so  as  to  lessen  the  differential  theretofore  enjoyed  by  the  Texas 
producers.  In  cases  of  this  kind,  the  Texas  Commission  regulates  the 
state  rates  so  as  to  keep  Texas  markets  for  Texas  producers.  The  fear 
that  their  intrastate  rates  within  Texas  will  be  lowered  has  prevented 
carriers  from  lowering  their  .interstate  rates.  In  a  number  of  cases 
the  railroads  have  written  to  the  Commission  asking  whether  it  would 
have  any  objection  to  a  reduction  of  an  interstate  rate  from  Louisiana 
into  Texas,  and  the  Commission  had  uniformly  replied  that  it  would 
have  such  objection  in  any  case  in  which  Louisiana  products  would 
thereby  come  into  competition  with  those  produced  in  Texas.  As  a 
result  of  the  Commission's  uniform  reply,  the  railroads  in  these  cases 
have  refrained  from  reducing  the  interstate  rates. 

The  rate  expert  told  me  that  as  far  as  he  knew,  this  paragraph  had 
never  been  attacked  on  the  ground  that  the  emergency  rates  were  estab- 
lished without  any  notice  whatsoever  to  the  carrier  and  consequently 
without  due  process  of  law.  "We  agreed  that  it  would  be  wiser  to  give 
some  short  notice,  such  as  three  days. 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  83 

V. 

EXPRESS    RATES. 

Early  in  its  history,  the  Commission  established  a  distance  express 
tariff  applying  on  merchandise  for  every  pound  up  to  100;  a  similar 
tariff  for  general  specials;  similar  tariffs  for  certain  commodities  such 
as  green  and  fresh  fruits,  melons  and  vegetables,  beer  and  other  liquors, 
mineral  and  spring  water;  also  an  express  classification  with  rates  and 
rulings. 

The  Commission  seems  very  largely  to  have  established  the  rates  and 
regulations  in  effect  at  the  time,  so  that  no  complaint  was  made  by  the 
express  companies.  Later,  when  Commissioner  (now  Governor)  Col- 
quitt  was  elected,  he  started  an  investigation  for  a  reduction  of  express 
rates.  The  Commission  made  an  order  reducing  express  rates  (an  early 
report  states  that  the  average  reduction  was  about  20  per  cent,  although 
it  is  very  questionable  whether  the  reduction  was  in  fact  so  large), 
whereupon  the  express  companies  at  once  enjoined  the  Commission, 
as  is  their  usual  practice  in  these  cases.  Mr.  Colquitt  took  a  mass  of 
testimony  in  San  Francisco  and  elsewhere.  After  some  six  or  eight 
months,  the  matter  was  compromised  by  a  new  order  making  an  average 
cut  of  some  8  per  cent,  and  the  rates  established  by  that  order  are  in 
effect  to-day. 

VI. 

DEPARTMENT   OF    STATISTICS    AND    ACCOUNTS. 

Mr.  W.  F.  Fitzgerald,  who  was  for  over  twenty  years  auditor  of  the 
Southern  Pacific  Company,  has  charge  of  the  work  of  this  department. 

The  railroad  companies  make  annual  returns  on  the  forms  prescribed 
by  the  Texas  Commission.  These  forms  are  modeled  on  those  prepared 
by  the  Interstate  Commerce  Commission  for  steam  railroads.  In  addi- 
tion to  the  information  called  for  by  the  interstate  forms,  the  Texas 
forms  provide  for  a  segregation  of  operating  revenue,  both  freight  and 
passenger,  into  local,  interline-interstate  and  interline-intrastate.  The 
state  returns  call  for  a  segregation  of  operating  expenses  into  one 
hundred  and  sixteen  accounts,  based  on  those  prescribed  by  the  Inter- 
state Commerce  Commission.  In  addition  to  this  information,  the  form 
calls  for  the  following  information : 

1.  As  to  passenger  traffic,   it  calls  for  the  number  of  passengers 
carried,  earning  revenue,  and  the  number  of  passengers  carried  one 
mile  as  to  local,  interline-state  and  interline-interstate  traffic. 

2.  As  to  freight  traffic,  similar  information  is  requested  as  to  the 
number  of  tons  carried  earning  revenue,  and  the  number  of  tons  carried 
one  mile. 

3.  As  to  train  mileage,  information  is  called  for  as  to  revenue  freight, 
revenue  passenger,  revenue  mixed,  revenue  special  service,  total  revenue, 


84  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

train  mileage  and  non-revenue  totals  as  to  freight,  passenger  and  work 
trains. 

"When  the  returns  are  filed  with  the  Commission,  they  are  carefully 
checked  over  by  Mr.  Fitzgerald  and  requests  for  corrections  and  amplifi- 
cations are  frequently  made  by  him.  Before  he  took  office,  the  reports 
were  simply  filed  without  being  checked  over.  The  returns  are  analyzed 
by  Mr.  Fitzgerald  and  appear  in  twenty-six  carefully  worked  out  statis- 
tical tables  in  the  annual  report  of  the  Commission.  The  work  of  the 
Texas  Commission  in  analyzing  and  tabulating  the  reports  of  the  rail- 
way companies  ranks  with  the  work  of  the  Massachusetts  Commission 
as  among  the  best  in  the  country  and  can  be  referred  to  with  profit  by 
the  California  Commission  when  it  starts  on  this  same  work.  . 

The  Commission  receives  also  from  each  railroad  a  monthly  report 
of  operating  revenues,  operating  expenses,  passenger  traffic,  freight 
traffic  and  train  mileage.  Mr.  Fitzgerald  considers  these  reports  valu- 
able for  the  reason  that  they  allow  the  Commission  to  see  month  by 
month  just  how  the  railroads  are  spending  their  money  and  thus  enables 
the  Commission  to  stop  unauthorized  expenditures.  Texas  and  Okla- 
homa seem  to  be  the  only  Commissions  which  require  these  monthly 
statements. 

Several  years  ago,  the  Commission  promulgated  its  bookkeeping  rules 
Al  and  A2.  Number  A2,  prescribing  the  keeping  of  accounts  so  as  to 
segregate  operating  expenses  as  to  passenger  and  freight  for  each  of  the 
one  hundred  and  sixteen  accounts  prescribed  by  the  Interstate  Com- 
merce Commission,  and  also  as  to  local,  interline-intrastate  and  interline- 
interstate,  wras  enjoined  in  the  district  court  of  Travis  County,  in  the 
suit  of  Texas  and  Pacific  Railway  Company  vs.  Railroad  Commission 
of  Texas.  The  district  court  in  that  case  rendered  judgment  against 
the  Commission;  the  case  was  recently  decided  on  appeal  in  the  court 
of  Civil  Appeals  in  favor  of  the  Commission.  In  this  order,  the  Com- 
mission prescribed  the  bases  of  segregation,  and  the  railroads  severely 
attacked  the  same.  These  bases  should  be  compared  with  those  used  by 
the  Wisconsin  Commission  in  the  Buell  ease,  those  prescribed  by  the 
Oregon  Commission  and  those  used  by  Statistician  James  Peabody  of 
the  Santa  Fe. 

The  Texas  Commission  uses  for  express  companies  the  form  of  return 
prescribed  by  the  Interstate  Commerce  Commission. 

VII. 

VALUATION    OF    RAILROAD    PROPERTIES. 

The  Railroad  Commission  Act  provides  that  the  Commission  "shall 
ascertain  as  early  as  practicable  the  amount  of  money  expended  in  the 
construction  and  equipment  per  mile  of  each  railway  in  Texas,  the 


REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS.  85 

amount  of  money  expended  to  procure  the  rights  of  way  and  the  amount 
of  money  it  would  require  to  reconstruct  the  railroad  bed,  track,  depots 
and  transportation,  and  to  replace  all  the  physical  properties  belonging 
to  the  railroads." 

Section  3  of  the  stock  and  bond  law  provides  that  "it  shall  be  the 
duty  of  the  railroad  commission  to  ascertain,  and,  in  writing,  report  to 
the  Secretary  of  State  the  value  of  each  railroad  in  this  state,  including 
all  its  franchises,  appurtenances  and  property." 

It  will  be  noted  that  the  directions  contained  in  these  two  statutes 
differ  with  respect  to  franchise  values.  The  duty  imposed  by  the  Rail- 
road Commission  Act  is  to  ascertain  the  value  of  the  physical  properties 
of  the  railroads,  whereas  the  duty  imposed  by  the  Stock  and  Bond  Act 
is  to  ascertain  the  value  of  each  railroad,  including  all  its  franchises 
and  appurtenances.  It  might  well  be  that  the  value  of  a  franchise 
might  be  considered  in  determining  the  amount  of  stocks  and  bonds 
which  a  railroad  company  may  properly  issue,  while  it  would  be  im- 
proper to  consider  the  value  of  that  franchise  for  rate  fixing  purposes. 
I  assume  that  some  such  idea  is  responsible  for  the  difference  in  the 
language  of  these  two  statutes. 

The  Texas  Commission,  in  such  valuations  as  it  has  made,  has  appa- 
rently acted  under  the  terms  of  the  stock  and  bond  law  and  under  that 
law  has  valued  some  12,988.09  out  of  13,819.44  miles  of  main  trackage 
in  the  state. 

For  the  purpose  of  ascertaining  the  value  of  the  railroads  under  the 
stock  and  bond  law,  blanks  calling  for  values  of  (a)  railroad  bed, 
tracks,  etc.,  (&)  rolling  stock,  (c)  miscellaneous — are  handed  to  the  rail- 
roads affected.  Upon  receipt  of  these  returns,  the  engineer  checks  over 
the  figures.  Under  the  head  of  "c"  appear  street  franchises,  legal  and 
engineering  expenses  and  interest  during  construction,  but  not  com- 
missions and  discounts.  All  general  franchises  are  valued  at  6  per  cent 
of  the  value  of  the  railroads  and  are  then  added  to  the  totals  derived  by 
the  addition  of  a,  b,  and  c,  for  the  purpose  of  covering  such  items  as 
discount  on  bonds  and  contingencies  which  could  not  be  considered  in 
the  scheme  of  valuation  provided  by  law. 

No  valuation  under  the  stock  and  bond  law  has  ever  been  contested  in 
Texas.  There  was  some  talk  when  I  was  in  Austin  to  the  effect  that  the 
International  and  Great  Northern  Railroad  would  appeal  from  a  recent 
valuation  of  the  Commission,  but  nothing  definite  has  been  done  in  the 
matter.  This  railroad  wished  to  issue  bonds  in  excess,  of  the  amount 
which  could  be  issued  on  the  basis  of  the  valuation  made  by  the  Com- 
mission. 


86  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS. 

VIII. 
STOCK    AND    BOND    LAW. 

Texas  has  the  most  complete  stock  and  bond  law  of  which  I  know.  It 
prescribes  practically  every  detail,  leaving  little  or  nothing  to  the  discre- 
tion of  the  Commission.  It  declares  that  no  bonds  or  other  indebtedness 
shall  issue,  secured  by  lien  or  mortgage  on  railroad  properties  in  Texas, 
above  the  reasonable  value  of  the  property,  except  that  in  case  of 
emergency  the  issue  may  run  up  to  50  per  cent  in  excess  of  such 
value.  The  Commission  has  confined  emergencies  to  fire,  flood  or  other 
acts  of  God.  The  statute  provides  for  a  valuation  of  railroad  properties 
as  described  in  paragraph.  VII  hereof,  with  the  right  on  the  part  of  the 
company  to  a  hearing  before  the  Commission ;  for  the  filing  by  the 
Commission  of  its  certificate  of  value  with  the  secretary  of  state;  for 
the  authorization  of  the  issue  by  the  Commission ;  and  for  the  registra- 
tion of  its  bonds  by  the  railway  company  with  the  secretary  of  state, 
with  adequate  penalties. 

As  every  railroad  corporation  doing  business  in  Texas  except  the 
Texas  Pacific  (under  a  federal  charter)  and  the  Atchison,  Topeka  and 
Santa  Fe,  a  leasing  line,  operates  under  a  Texas  charter,  the  question 
whether  the  stock  and  bond  law  applies  to  a  foreign  corporation  has 

not  arisen  in  Texas. 

IX. 

CONTROL  OVER  CORPORATIONS. 

By  providing  that  each  railway  shall  keep  in  Texas  an  office  for 
transfer  of  stock,  that  the  directors  must  hold  at  least  one  meeting 
annually  in  Texas,  that  no  railway  company  shall  consolidate  with 
any  other  railway  company  organized  under  the  laws  of  any  other  state 
or  the  United  States,  and  similar  provisions  in  her  constitution  and 
statutes,  Texas  has  driven  all  the  railway  companies,  except  the  two 
hereinbefore  mentioned,  to  take  out  separate  charters  in  Texas.  This 
result  has  simplified  the  control  in  Texas  over  stock  and  bond  issues. 

X. 

DEPOT   COMPLAINTS. 

I  was  informed  that  the  Commission  handles  a  large  number  of 
complaints  calling  for  the  erection  of  additional  depots  or  the  improve- 
ments of  existing  ones.  The  Commission  has  no  inspectors  to  send 
out  on  the  line ;  the  engineer  performs  all  this  work.  The  complainant 
presents  his  case,  with  a  photograph  where  applicable,  and  the  defend- 
ant its  case,  whereupon  the  Commission  decides.  In  the  important 
Dallas  Union  Depot  case,  the  attorney  general  ruled  that,  as  the 
statute  now  reads,  the  Commission  can  not  prescribe  the  exact  site  of  a 
union  depot,  though  it  has  authority  to  order  the  erection  of  such 


REPORT    ON   RAILROAD    AND   PUBLIC    SERVICE    COMMISSIONS.  87 

depot.  The  Commission,  in  its  1910  report,  referring  to  union  depots, 
recommends  that  the  statute  be  amended  so  as  to  give  to  the  Commission 
authority  to  fix  the  site  for  the  location  of  such  depots  and  also  author- 
ity to  enforce  compliance  with  the  orders  of  the  Commission  in  the 
premises. 

XL 

NEWSPAPERS. 

Ten  copies  of  each  circular  changing  rates  and  ten  copies  of  any 
statement  which  may  be  prepared  by  the  Commission  for  publication  are 
placed  on  a  newspaper  file  in  the  office.  The  reporters  come  in  each  day 
and  take  off  the  copies  for  their  respective  papers.  The  Texas  Commis- 
sion, in  common  with  most  of  the  wide  awake  Commissions  of  the 
country,  lays  great  stress  on  the  matter  of  publicity. 


88  REPORT   ON   RAILROAD   AND  PUBLIC   SERVICE   COMMISSIONS. 

OKLAHOMA. 

I. 

INTRODUCTION. 

The  Corporation  Commission  of  Oklahoma  was  created  by  section 
15  of  article  9  of  the  Constitution  (1907)  and  most  of  its  powers  and 
duties  are  defined  by  the  Constitution  itself.  The  Commission  has  juris- 
diction over  railroad,  express,  telegraph,  telephone,  oil  pipe,  car  com- 
panies and,  at  least  to  a  certain  extent,  over  heat,  light,  power  and 
water  companies.  Some  of  these  latter  utilities  have  denied  the  right  of 
the  Commission  to  regulate  their  rates.  The  Commission  also  claims 
the  right  under  another  section  of  the  Constitution  to  regulate  and  fix 
the  price  of  any  article  as  to  which  a  monopoly  exists,  and  under  this 
section  has  in  certain  cases  fixed  the  rates  of  ice  and  lumber. 

The  Commission  has  twice  asked  the  legislature  to  pass  a  statute 
giving  to  it  control  over  the  issues  of  stocks  and  bonds.  The  statute 
as  proposed  specified  that  the  sum  of  stock  and  bonds  should  not  exceed 
the  valitfc  of  the  property  except  in  emergency  cases  when  the  total 
might  run  up  to  50  per  cent  in  excess  of  the  value.  The  Commission 
likewise  has  no  control  over  the  exercise  of  franchise  rights  or  the 
commencement  of  construction  of  a  plant.  The  municipalities  them- 
selves determine  these  matters  and  uniformly  grant  the  new  companies 
the  desired  permission  to  enter  the  field. 

II. 

ORGANIZATION   AND    OFFICE   SYSTEM. 

1.  The  Commission. 

The  commissioners  are  J.  E.  Love,  chairman,  A.  P.  Watson,  and 
George  A.  Henshaw.  Mr.  Love  is  a  cattle  raiser.  Mr.  "Watson  is  about 
64  years  of  age,  a  farmer  and  formerly  a  colonel  in  the  Confederate 
Army.  Mr.  Henshaw  was  formerly  Assistant  Attorney  General  and 
was  a  member  of  the  Oklahoma  Constitutional  Convention.  The  Com- 
mission is  one  of  the  most  active  in  the  country.  The  commissioners 
devote  all  their  time  to  the  duties  of  their  office.  They  are  elected  at 
large  for  terms  of  six  years  and  receive  an  annual  salary  of  $4,000  each. 

2.  Employees. 

The  office  is  divided  into  the  following  departments: 

1.  Executive. 

2.  Auditing. 

3.  Engineering. 

4.  Kate. 

5.  Telephone. 

6.  General  corporation  records. 


KEPORT   ON  RAILROAD  AND  PUBLIC   SERVICE   COMMISSIONS.  89 

The  law  and  executive  clerk,  E.  C.  Patton,  receives  a  salary  of 
$2,000.00;  the  rate  expert,  Mr.  Bee,  $3,600.00;  the  auditor,  Mr.  Stout, 
$2,500.00 ;  the  telephone  expert,  Geo.  P.  Player,  $2,500.00 ;  the  engineer 
$3,000.00;  and  the  corporation  record  clerk  $2,200.00.  In  addition  to 
these  men,  the  Commission  employs  an  assistant  engineer  and  two  or 
three  tariff  men;  several  assistants  to  the  auditor;  two  or  three  assist- 
ants each  to  the  rate  expert,  the  telephone  expert  and  the  corporation 
record  clerk;  and  several  official  stenographers  and  some  four  or  five 
office  stenographers. 

For  the  two  years  from  July  1,  1909,  to  June  30,  1911,  the  legislature 
appropriated  for  salaries,  printing  and  court  expenses  $60,200.00;  for 
contingent  expenses  $120,000.00;  and  for  rate  litigation  in  the  fed- 
eral courts  $50,000.00— being  a  total  of  $230,200.00  for  two  years,  or 
$115,100.00  for  one  year.  For  details  of  the  contingent  account,  see 
the  1909-1910  report,  at  page  11. 

III. 

COURT  PROCEDURE. 

Section  20  of  Article  IX  of  the  constitution  provides  that  from  the 
orders  of  the  Commission  therein  specified,  an  appeal  may  be  taken 
directly  to  the  State  Supreme  Court.  The  constitution  does  not  specify 
the  time  within  which  the  appeal  may  be  taken,  but  Commissioner 
Henshaw  told  me  that  the  courts  had  ruled  that  it  may  be  taken  at  any 
time  within  a  year.  The  constitution  provides  that  such  appeal  may  be 
taken  in  designated  cases  only,  as  from  orders  prescribing  rates,  charges 
and  classifications,  and  that  the  legislature  may  also  provide  by  general 
laws  for  appeals  from  orders  of  the  Commission  in  other  cases.  Mr. 
Patton  pointed  out  the  importance  of  the  limitation  just  noted.  When 
the  Commission  made  its  important  accounting  order  (No.  50),  the 
corporations  asked  the  Commission  to  approve  a  supersedeas  bond, 
which  the  Commission  refused  to  do,  on  the  ground  that  this  was  not 
a  case  in  which  an  appeal  would  lie  (June  29,  1909).  On  June  30, 
1909,  the  supreme  court  denied  the  request  of  the  petitioners  for  a 
supersedeas  on  the  ground  that  this  was  not  an  appealable  case.  Mr. 
Patton  pointed  out  other  cases,  such  as  cases  of  request  for  information 
to  be  used  in  pending  litigation,  in  which  the  Commission's  hands  should 
not  in  his  judgment  be  tied. 

Section  21  provides  that  the  supreme  court  may  grant  a  writ  of  super- 
sedeas, but  that  it  can  not  do  so  until  a  suspending  bond  shall  first 
have  been  approved  by  the  Commission  in  an  amount  sufficient  to  insure 
the  payment  of  all  charges  in  excess  of  those  finally  established  by  the 
court  on  appeal.  The  Constitution  provides  that  the  Commission  must 
thereupon  forthwith  direct  the  appealing  company  to  keep  such  accounts 
as  in  the  judgment  of  the  Commission  may  suffice  to  show  the  amounts 


90  REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE   COMMISSIONS. 

being  charged  or  received  by  the  company  in  excess  of  the  charge 
allowed  by  the  Commission,  together  with  the  names  and  addresses  of 
the  persons  to  whom  such  overcharges  will  be  refundable  in  case  the 
charges  made  by  the  company  are  not  sustained  on  appeal.  On  the 
final  decision,  the  Commission  may  direct  the  manner  of  the  payment 
of  refunds.  Such  appeals  shall  have  precedence  in  the  supreme  court 
over  all  other  cases  except  habeas  corpus  and  state  cases  already  on  the 
docket  of  the  court. 

Mr.  Patton  was  of  the  opinion  that  the  requirements  to  keep  books 
showing  excess  collections  is  a  powerful  detriment  against  appeals  from 
the  orders  of  the  Commission.  It  is  an  expensive  task  to  keep  such 
records.  "Wells-Fargo  &  Company  are  keeping  them  under  their  appeal 
from  the  Commission's  order  of  June  11,  1909. 

Section  22  provides  that  the  supreme  court  may  not  consider  any 
new  or  additional  evidence,  "but  the  court  may,  when  it  deems  it  neces- 
sary, in  the  interest  of  justice,  remand  to  the  Commission  any  case 
pending  on  appeal  and  require  the  same  to  be  further  investigated  by 
the  Commission,  and  reported  upon  to  the  court,  before  the  appeal  is 
finally  decided."  Commissioner  Henshaw  thinks  that  this  is  a  good 
provision,  for  the  reason  that  the  court  is  thus  enabled  to  give  to  the 
Commission  another  opportunity  in  any  case  in  which  otherwise  it 
would  have  to  decide  against  the  Commission.  The  Wells-Fargo  & 
Company  case  is  now  back  before  the  Commission  to  ascertain  just 
what  losses  in  revenue,  if  any,  would  be  suffered  under  the  Commis- 
sion's order,  if  it  went  into  effect. 

Whenever  the  supreme  court  reverses  an  order  of  the  Commission 
affecting  rates,  charges,  classifications,  etc.,  it  must  substitute  another 
rate,  charge  or  classification,  so  that  its  function  in  this  respect  is  legis- 
lative and  not  judicial.  This  provision  was  taken  from  the  Virginia 
constitution,  referred  to  in  the  case  of  Prentiss  vs.  Atlantic  Coast  Line, 
211  U.  S.  210,  in  wrhich  case  it  was  held  that  the  federal  courts  should 
not,  as  a  matter  of  comity,  assume  jurisdiction  to  enjoin  an  order  of  a 
state  railroad  commission  fixing  rates,  until  the  corporation  has  com- 
pletely exhausted  its  remedy  by  appeal  to  the  final  rate  fixing  body  in 
the  state,  which  in  Virginia  and  Oklahoma  is  the  supreme  court.  Not- 
withstanding an  appeal,  the  Commission  has  the  right  to  make  other 
orders  in  the  same  matter  based  upon  different  circumstances  and  con- 
ditions. This  provision  is  obviously  to  prevent  the  tying  up  of  the 
entire  rate  situation  during  the  pendency  of  court  proceedings. 

IV. 

LITIGATION. 

The  Oklahoma  Commission  has  had  more  cases  on  appeal  than  any 
other  railroad  commission  in  the  country.  It  has  had  almost  as  many 
appeals  as  all  the  other  commissions,  which  I  investigated,  put  together. 


REPORT    ON    RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  91 

Of  the  first  one  hundred  cases  coming  before  the  Commission  on 
complaints  of  third  parties  and  formally  heard  before  the  Commission, 
appeals  were  taken  in  thirty-seven  cases.  The  record  in  these  cases 
is  as  follows: 

1.  Affirmed   (or  appeals  dismissed) 15 

2.  Reversed , 5 

3.  Partly  affirmed  and  partly  reversed 2 

4.  Remanded  for  further  testimony 2 

5.  Pending 13 

Of  the  cases  reversed,  the  Commission  had  in  one  case  ordered  a  rail- 
road to  construct  at  its  own  expense  a  side  track  so  as  to  equalize 
a  disadvantage  of  location.  In  two  cases,  it  had  ordered  a  railroad  to 
install  telegraph  service  for  commercial  purposes.  In  one  case,  it  had 
held  that  a  railroad  would  have  to  install  all  desired  street  crossings  at 
its  own  expense,  and  in  the  fifth  case,  involving  the  installation  of  tele- 
graph service  for  bulletining  passenger  trains,  there  was  no  evidence  as 
to  amount  of  passenger  service  at  the  station. 

As  bearing  upon  the  reason  for  so  many  appeals,  it  is  well  to  note 
that  the  Commission  granted  the  petitioner's  prayer  in  its  original 
form  or  a  modified  form  in  eighty-six  out  of  those  one  hundred  cases 
and  denied  it  in  only  fourteen. 

In  cases  on  the  Commission's  own  initiative,  in  which  proposed  orders 
are  issued  and  published  and  final  orders  are  then  either  issued  or  not 
issued  after  hearing,  the  railroads  appealed  in  nearly  every  case.  Fif- 
teen of  these  appeals  were  from  orders  establishing  rates  on  different 
commodities.  The  railroads  also  appealed  from  orders  directing  reports 
as  to  earnings,  state  and  interstate ;  requiring  accident  reports ;  requir- 
ing physical  connections  at  junction  points ;  establishing  demurrage  and 
storage  rules ;  requiring  the  promulgation  of  all  rules  and  regulations ; 
and  requiring  all  public  service  corporations  to  maintain  an  office  in 
the  state. 

The  most  important  cases  now  in  litigation  involve  the  rates  of : 

1.  Railroads. 

2.  Telegraph  companies. 

3.  Express  companies. 

N 

1.     Railroads. 

The  matters  in  litigation  comprise  the  2  cent  maximum  passenger 
fare  law  (part  of  the  Constitution)  and  the  different  commodity  rates 
prescribed  by  the  Commission.  The  corporations  went  to  the  federal 
courts  and  secured  injunctions,  so  that  these  rates  have  never  gone  into 
effect.  The  case  went  to  the  United  States  Supreme  Court  on  the  con- 
tention of  the  state  that  under  the  Prentiss  case,  211  U.  S.  210,  it  was 
the  duty  of  the  corporations  to  first  exhaust  their  remedy  by  appeal  to 

7— RC 


92  REPORT   ON    RAILROAD    AND   PUBLIC    SERVICE    COMMISSIONS. 

the  state  supreme  court.  Judge  Hook,  in  the  circuit  court,  differenti- 
ated this  case  from  the  Prentiss  case  on  the  ground  that  the  Commission 
had  refused  to  grant  a  supersedeas  bond.  The  United  States  Supreme 
Court  refused  to  decide  this  point,  but  sent  the  case  back  to  Judge 
Hook,  who  decided  three  or  four  months  ago  against  the  state.  Com- 
missioner Henshaw,  in  referring  to  the  decision,  said  that  it  would  be 
impossible  to  secure  a  fair  decision  from  the  federal  courts  as  long  as 
they  insisted  on  holding  that  the  cost  of  state  service  was  from  two  or 
eight  times  as  much  as  the  cost  of  interstate  service. 

Mr.  Henshaw  said  that  he  hardly  thought  the  Commission  would  fur- 
ther contest  the  passenger  fare  case.  Section  37  of  article  IX  of  the 
constitution,  while  establishing  a  2  cent  maximum  passenger  fare,  gives 
the  Commission  power  "to  exempt  any  railroad  from  the  operation  of 
this  section  upon  satisfactory  proof  that  it  cannot  earn  a  just  com- 
pensation for  the  services  rendered  by  it  to  the  public,  if  not  permitted 
to  charge  more  than  2  cents  per  mile  for  the  transportation  of  pas- 
sengers within  the  state."  The  Commission  has  exempted  from  the 
provisions  of  the  2  cent  law  all  railroads  applying  for  exemption. 

2.  Telegraph  rates. 

On  December  2,  1908,  the  commission  issued  its  order  No.  149  pre- 
scribing telegraph  rates,  rules  and  regulations.  Commissioner  Watson 
told  7ne  that  there  would  have  been  no  appeal  had  it  not  been  for  rule 
4  providing  that  the  receiving  clerk  must  mark  on  the  message  the  time 
of  filing,  and  rule  6  providing  that  the  operator  on  the  other  end  of 
the  line  must  mark  on  the  message  the  time  when  received  by  him. 

On  December  19,  1908,  the  case  was  certified  to  the  Supreme  Court. 
On  December  28,  1909,  the  mandate  of  the  Supreme  Court  was  received, 
requiring  the  taking  of  further  evidence  to  show  what  the  company 
would  have  lost  had  the  order  gone  into  effect.  If  I  am  not  mistaken, 
a  heavy  indemnity  bond  has  been  filed  by  the  company  and  it  is  also 
keeping  an  account  of  excess  payments. 

3.  Express  Rates. 

On  June  11,  1909,  the  Commission  issued  its  opinion  and  order  No. 
203,  prescribing  new  rates,  rules  and  regulations  for  express  companies. 
This  is  a  long  and  carefully  worked  out  order  prescribing  distance  tables 
for  merchandise,  general  special,  milk  and  cream,  and  other  special  com- 
modities and  also  classifications,  rules,  etc.,  and  making  a  total  reduction 
in  rates  of  about  20  per  cent.  All  four  express  companies,  Wells-Fargo 
&  Company,  United  States,  American  and  Pacific,  appealed  to  the 
State  Supreme  Court,  giving  bonds  in  amounts  of  $200,000,  $33,000, 
$35,000  and  $4,500  respectively.  The  Supreme  Court  remanded  the 
case  with  instructions  to  ascertain  the  amount  of  loss  which  would 
have  been  sustained,  had  the  order  gone  into  effect.  The  express  com- 


REPORT    ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  93 

panies  have  taken  a  large  amount  of  testimony  on  that  point  but  the 
state  has  not  as  yet  had  an  opportunity  to  rebut  the  same. 

I  was  informed  that  the  express  companies  are  trying  to  compromise 
the  case  and  that  they  have  made  several  propositions  which,  while 
seeming  fair,  have  as  a  matter  of  fact  made  but  very  small  reductions, 
for  the  reason  that  the  proposed  reductions  are  in  rates  under  which  but 
few  commodities  move.  The  express  companies  seem  to  be  chafing  under 
the  expense  necessary  to  keep  account  of  every  shipment  made,  with  the 
name  and  address  of  the  consignor  and  the  amount  paid  in  excess  of  the 
Commission's  order. 

V. 

COMMISSION'S    BUSINESS. 

Until  recently  the  matters  on  which  the  Commission  took  action 
were  divided  into  (1)  complaints;  (2)  proposed  orders,  on  Commission's 
own  initiative;  and  (3)  citations  for  disobedience  of  Commission's 
orders.  At  present  all  matters  are  placed  on  one  general  docket  file. 
The  character  of  the  Commission 's  activities  appears  from  the  following 
compilation : 

1.     Complaints. 

Of  the  first  one  hundred  complaints  on  which  the  Commission  took 
action,  other  than  to  dismiss  at  the  request  of  plaintiff  or  for  lack  of 
prosecution,  the  nature  of  the  cases  was  as  follows : 

Steam  Railroads. 

Passenger  trains — stop  on  signal 8 

Depots — erection  or  increase  in  size 18 

Shipping  facilities 5 

Sidetracks,  spurs,  switches 9 

Railroad  crossing — with  another  railroad 1 

Railroad   crossing — with   highway 2 

Passengers — treatment  of,  after  wreck 1 

Physical  connections,  railroads 2 

Stations 2 

Bulletining  of   trains   1 

Stock  pens,  water  in 2 

Agent  at  depot 1 

Depot  to  be  moved 1 

Additional  passenger  service 5 

Name  of  station,  change  in 1 

Waiting  rooms '. 1 

Stockyard  scales 1 

Agent,  discourteous  treatment  by 1 

Union  stations 1 

Drainage  opening 1 

Interurban  Railroads. 
Rates,  reduction  of 1 

Street  Railroads. 
Extension  of  service  _  1 


94  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

Telephone  Companies. 

Installation  in  railroad  depot 9 

Rates,  reduction  of 1 

Rates,  discrimination  in 1 

Physical  connection 6 

Installation  in  private  residence 1 

Telegraph  Companies. 
Installation  or  restoration  of  service 7 

Gas  Companies. 
Gas  to  be  furnished 1 

Express  Companies. 
Establishment  office  and  agent 2 

Ice  Companies. 

Rates,  reduction  in 1 

Service,  short  weight,  refusal  to  sell,  etc 4 

A  perusal  of  the  foregoing  table  will  show  a  very  great  amount  of 
time  devoted  by  the  Commission  to  the  consideration  of  the  questions  of 
service,  facilities  and  equipment. 

2.  Proposed  Orders. 

These  have  dealt  with  matters  of  fixing  rates;  accounting  rules;  the 
filing  of  plans  and  specifications  of  all  depots;  accident  reports;  phys- 
ical connection  of  railroads  at  junction  points;  the  filing  of  inventories 
of  all  telephone  and  telegraph  properties;  fixing  the  amount  of  excess 
fare  to  be  charged  to  passengers  without  tickets;  demurrage  and 
storage  rules;  handling  and  moving  of  freight;  filing  documents  with 
the  Commission;  requiring  all  public  service  corporations  to  maintain 
offices  in  the  state ;  the  filing  of  tariffs  by  express  companies,  etc.  About 
seventy-five  proposed  orders  were  made,  of  which  quite  a  number  were 
never  issued. 

3.  Citations. 

These  citations  are  for  violations  of  the  Commission's  orders  on  infor- 
mation of  third  parties.  The  Commission  has  power  to  enforce  com- 
pliance with  its  orders  by  the  imposition  of  fines.  The  usual  fine  for 
contempt  of  the  Commission's  orders  is  somewhere  between  $100.00  and 
$500.00.  Up  to  1911,  there  were  one  hundred  and  twenty-three  of  these 
cases.  The  fines  are  imposed  on  the  theory  that  the  railroad  is  in  con- 
tempt for  failure  to  use  due  diligence  in  obeying  the  orders  of  the 
Commission.  In  most  other  states,  the  desired  results  would  be  secured 
without  the  necessity  of  contempt  proceedings. 

VI. 

AUDITING    DEPARTMENT. 

(a)  Annual  reports. 

This  department  has  prepared  forms  of  annual  reports  for  all  rail- 
roads, street  railroads,  gas,  electric,  telephone  and  telegraph  companies. 


REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  95 

The  railroad  reports  contain  the  information  required  by  the  Interstate 
Commerce  Commission  and  also  the  additional  information  required  by 
the  Texas  Commission.  The  gas,  electric,  telephone  and  telegraph 
reports  have  been  worked  out  in  considerable  detail  and  will  be  valuable 
as  models. 

(&)  Monthly  reports. 

Following  the  lead  of  the  Texas  Commission,  the  Oklahoma  Com- 
mission requires  each  month  from  each  railway  company  a  full  state- 
ment of  earnings,  operating  expenses  and  tonnage  moved,  going  into 
considerable  detail  as  to  segregation  between  state  and  interstate  traffic. 
The  Commission  also  requires  a  monthly  statement  of  the  total  tonnage 
and  revenue  of  all  commodities  moved  during  the  month. 

(c)   Organization  reports. 

The  Commission  also  required  of  each  railroad  subject  to  its  juris- 
diction a  special  report  containing  a  copy  of  its  charter;  its  mortgages 
and  other  agreements  affecting  its  property;  minutes  of  stockholders' 
meetings,  etc.  These  returns  have  been  bound  and  are  valuable  for 
reference  purposes.  The  Oklahoma  Street  Railway  report  is  particu- 
larly complete. 

VII. 

ENGINEERING  DEPARTMENT. 

This  department  is  working  on  the  valuation  of  the  properties  of  the 
railroads  and  of  the  public  utilities  of  the  state.  As  to  none  of  these 
companies  is  the  material  in  final  form.  Questions  concerning  unearned 
increment,  right  of  way  multiple,  interest,  discounts  and  commissions 
have  not  as  yet  been  determined  by  the  Commission. 

The  department  has  prepared  a  complete  railroad  map  of  Oklahoma 
and  is  now  preparing  detailed  maps  of  each  county.  The  Commission 
paid  about  $500.00  for  5,000  of  these  maps,  an  unusually  low  figure. 

VIII. 

TELEPHONE    DEPARTMENT. 

This  department  is  in  charge  of  Mr.  Geo.  P.  Player.  The  telephone 
companies  make  an  annual  report  and  also  monthly  reports,  the  latter 
showing  the  number  of  toll  and  residence  telephones  and  the  earnings 
and  expenses  for  each  station.  Mr.  Player  is  now  working  on  material 
for  an  investigation  by  the  Commission  of  telephone  rates  in  the  state. 
The  telephone  companies  have  returned  to  the  Commission,  on  blanks 
furnished  by  it,  a  statement  as  to  the  physical  values  of  their  plants,  by 
stations. 

There  are  over  six  hundred  telephone  companies  in  the  state,  most  of 
them  being  so-called  farmers '  telephone  companies.  Section  5  of  article 
IX  of  the  constitution  provides  that  all  telephone  and  telegraph  lines 


96  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

operated  for  hire  must  make  physical  connections  with  each  other's 
lines  under  such  rules  and  regulations  as  the  Commission  may  prescribe. 
This  is  a  matter  of  very  considerable  importance.  The  Commission 
forces  in  these  connections  whenever  the  point  is  raised,  with  the  result 
that  it  is  possible  to  talk  from  the  Commission's  office  with  over  50  per 
cent  of  the  farmers  of  the  state. 

IX. 

RATE  DEPARTMENT. 

This  department  is  headed  by  Mr.  C.  B.  Bee,  a  very  competent  man. 
The  department  has  in  its  files  not  only  all  the  tariffs  affecting  Oklahoma 
intrastate  business,  but  also  all  the  interstate  tariffs  in  any  way  affecting 
the  state,  both  those  issued  by  carriers  doing  business  in  Oklahoma  and 
those  issued  by  other  carriers  concurring  in  the  rates  into  or  through 
Oklahoma.  These  latter  tariffs  are  furnished  to  the  Commission  by  the 
local  railroads.  The  Oklahoma  Commission  believes  that  its  tariffs  are 
as  complete  as  those  of  any  state  commission  in  the  country. 

The  Commission  handles  all  interstate  commerce  complaints  for 
Oklahoma  citizens,  even  filing  complaints  for  them  and  appearing  before 
the  Interstate  Commerce  Commission  without  any  expense  to  the  com- 
plainant. 

X. 

CORPORATION  CLERK  DEPARTMENT. 

This  department  receives  reports  from  all  corporations  in  the  state 
and  collects  the  license  taxes. 

XI. 

MUNICIPAL   UTILITIES. 

The  Commission  has  no  control  over  public  service  plants  owned  or 
operated  by  municipalities.  In  this  respect  it  differs  from  the  Commis- 
sions of  Wisconsin,  Massachusetts  and  New  York. 

XII. 

GAS  AND   ELECTRIC   COMPANIES. 

The  Commission's  control  over  these  companies  has  been  somewhat 
halting,  for  the  reason  that  there  is  a  question  as  to  whether  the  consti- 
tution as  now  worded  confers  upon  the  Commission  full  power  of  control 
over  this  class  of  corporations. 

XIII. 

USE    OF    INITIATIVE    BY    CORPORATIONS. 

The  "interests"  of  the  state  have  three  times  tried  by  the  initiative  to 
repeal  a  section  of  the  constitution  forbidding  the  consolidation  of  local 
and  foreign  corporations  and  substituting  a  section  very  materially 


REPORT   ON   RAILROAD   AND   PUBLIC    SERVICE    COMMISSIONS.  97 

reducing  the  Commission's  power.  The  Commission  conducted  a  cam- 
paign each  time  against  the  proposition  and  is  of  the  opinion  that  it 
has  now  finally  won  out. 


RECOMMENDATIONS. 

From  the  observations  which  I  made  on  my  tour  of  investigation, 
I  respectfully  make  the  following  suggestions  and  recommendations  con- 
cerning the  regulation  and  control  of  public  service  corporations  in  this 
state : 

1.  Service,  Equipment  and  Facilities. 

The  appointment  by  the  Railroad  Commission  of  a  sufficient  number 
of  expert  inspectors  to  inspect  the  physical  condition  of  all  tracks, 
stations,  plants  and  other  facilities  and  equipment  of  all  the  public 
service  corporations  of  the  state ;  also  to  render  reports  constantly  as  to 
the  quality  and  sufficiency  of  the  service  rendered  to  the  public. 

2.  Stock  and  Bond  Law. 

The  determination  by  the  Railroad  Commission  of  the  amount  of 
stocks,  bonds,  notes  and  other  evidences  of  indebtedness,  that  public 
service  corporations  may  issue  and  the  conditions  of  the  issue. 

3.  Department  of  Statistics  and  Accounts. 

The  establishment  by  the  Railroad  Commission  of  a  department  of 
statistics  and  accounts  for  the  purpose  of  working  out  a  uniform  system 
of  accounts  for  the  different  public  service  corporations  of  the  state, 
of  analyzing  and  digesting  their  annual  reports,  and  furnishing  to  the 
Commission  financial  and  other  statistical  data  whenever  needed. 

4.  Public  Utilities. 

Adequate  control  by  the  Railroad  Commission,  under  the  constitution 
as  recently  amended,  of  rates,  service,  equipment,  stocks  and  bonds,  and 
accounts  of  gas,  electric,  water,  power,  telephone,  telegraph  and  street 
railway  companies,  and  other  public  utilities,  including  the  power  to 
compel  physical  connections  between  telephone  companies. 

5.  Property  Valuation. 

The  extension  of  the  power  of  the  Railroad  Commission  in  the  matter 
of  ascertaining  the  value  of  the  property  engaged  in  the  public  service 
from  railroads  to  all  other  public  service  corporations  subject  to  its 
jurisdiction. 

6.  Public  Safety. 

The  adoption  of  adequate  means  to  secure  public  safety,  particularly 
with  reference  to  grade  crossings  between  railroads  and  highways,  or 
two  or  more  railroads. 


98  REPORT   ON   RAILROAD   AND   PUBLIC   SERVICE   COMMISSIONS. 

7.  Interstate  Commerce  Complaints. 

The  protection  of  the  people  of  California  in  the  matter  of  interstate 
commerce  rates,  where  any  considerable  portion  of  the  shippers  of  the 
state  are  affected.  The  Railroad  Commission  should  appear  in  such 
cases  before  the  Interstate  Commerce  Commission. 

8.  Court  Proceedings. 

The  modification  of  existing  statutes  so  as  more  adequately  to  protect 
the  Railroad  Commission  from  the  great  delays  incident  to  court  pro- 
ceedings in  many  other  jurisdictions  and  for  the  protection  of  the  public 
in  the  interim. 

9.  Accidents. 

The  establishment  of  a  system  for  immediate  notice  to  the  Railroad 
Commission  of  accidents  and  for  examination  into  the  same  by  the 
Commission's  inspectors  and  recommendations  by  them  as  to  means  of 
prevention. 

10.  Co-operation. 

Between  the  state  Railroad  Commission  and  the  Interstate  Commerce 
Commission  and  constant  correspondence  with  other  state  commissions. 
Also  the  formation  of  a  Pacific  Coast  Railroad  Commissioners'  Associa- 
tion, to  consist  of  the  commissions  of  Oregon,  Washington,  Nevada  and 
California,  for  the  purpose  of  frequent  consultation  and  concerted 
action  on  problems  of  mutual  interest. 

Respectfully  submitted. 

MAX  THELEN, 
Attorney  for  Railroad  Commission 

of  State  of  California. 
Dated,  San  Francisco,  Cal., 
October,  1911.  ™ 


A    000083818    5 


University  of  California 

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Return  this  material  to  the  library 

from  which  it  was  borrowed. 


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